Michael Hudson: The IMF Changes Its Rules….for Ukraine

Yves here. Needless to say, the IMF broke its rules like crazy to fund the war lend to the government in Ukraine. For starters, it’s against IMF rules to lend to a country at war. IMF loans are also supposed to be sustainable. As Hudson reminds readers, it was clear from the outset that the Ukraine loans could never be paid back in full. But the IMF staff engaged in some creative writing to pretend otherwise.

So it should be no surprise that the rule-bending for Ukraine continues.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is KILLING THE HOST: How Financial Parasites and Debt Bondage Destroy the Global Economy

On December 8, the IMF’s Chief Spokesman Gerry Rice sent a note saying:

The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors. We will provide details on the scope and rationale for this policy change in the next day or so.

Since 1947 when it really started operations, the World Bank has acted as a branch of the U.S. Defense Departmnt, from its first major chairman John J. McCloy through Robert McNamara to Robert Zoellick and neocon Paul Wolfowitz. From the outset, it has promoted U.S. exports – especially farm exports – by steering Third World countries to produce plantation crops rather than feeding their own populations. (They are to import U.S. grain.) But it has felt obliged to wrap its U.S. export promotion and support for the dollar area in an ostensibly internationalist rhetoric, as if what’s good for the United States is good for the world.

The IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it made a radical decision to dismantle the condition that had integrated the global financial system for the past half century. In the past, it has been able to take the lead in organizing bailout packages for governments by getting other creditor nations – headed by the United States, Germany and Japan – to participate. The creditor leverage that the IMF has used is that if a nation is in financial arrears to any government, it cannot qualify for an IMF loan – and hence, for packages involving other governments.

This has been the system by which the dollarized global financial system has worked for half a century. The beneficiaries have been creditors in US dollars.

But on Tuesday, the IMF joined the New Cold War. It has been lending money to Ukraine despite the Fund’s rules blocking it from lending to countries with no visible chance of paying (the “No More Argentinas” rule from 2001). With IMF head Christine Lagarde made the last IMF loan to Ukraine in the spring, she expressed the hope that there would be peace. But President Porochenko immediately announced that he would use the proceeds to step up his nation’s civil war with the Russian-speaking population in the East – the Donbass.

That is the region where most IMF exports have been made – mainly to Russia. This market is now lost for the foreseeable future. It may be a long break, because the country is run by the U.S.-backed junta put in place after the right-wing coup of winter 2014. Ukraine has refused to pay not only private-sector bondholders, but the Russian Government as well.

This should have blocked Ukraine from receiving further IMF aid. Refusal to pay for Ukrainian military belligerence in its New Cold War against Russia would have been a major step forcing peace, and also forcing a clean-up of the country’s endemic corruption.

Instead, the IMF is backing Ukrainian policy, its kleptocracy and its Right Sector leading the attacks that recently cut off Crimea’s electricity. The only condition on which the IMF insists is continued austerity. Ukraine’s currency, the hryvnia, has fallen by a third this years, pensions have been slashed (largely as a result of being inflated away), while corruption continues unabated.

Despite this the IMF announced its intention to extend new loans to finance Ukraine’s dependency and payoffs to the oligarchs who are in control of its parliament and justice departments to block any real cleanup of corruption.

For over half a year there was a semi-public discussion with U.S. Treasury advisors and Cold Warriors about how to stiff Russia on the $3 billion owed by Ukraine to Russia’s Sovereign Wealth Fund. There was some talk of declaring this an “odious debt,” but it was decided that this ploy might backfire against U.S. supported dictatorships.

In the end, the IMF simply lent Ukraine the money.

By doing so, it announced its new policy: “We only enforce debts owed in US dollars to US allies.” This means that what was simmering as a Cold War against Russia has now turned into a full-blown division of the world into the Dollar Bloc (with its satellite Euro and other pro-U.S. currencies) and the BRICS or other countries not in the U.S. financial and military orbit.

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  1. TomDority

    It’s no surprise when institutions are run by interests that support neo-liberal economic systems that further enrich the haves from the have nots. that inflate asset prices, that reward unearned income, that extract from those who create and add value to the benefit of those that do not add value and collect un-earned income. It is no surprise then that despite the carnage some will insist to benefit themselves irregardless of the moral and economic devastation upon the rest of the world in an ever more futile attempt to shield themselves, and distance themselves from the predictable consequences of their own making.

  2. ChrisFromGeorgia

    It’s clear to all who have eyes to see, and functioning minds, that the IMF is just another tool of the Pentagon and run by corrupt, evil men.

              1. TheCatSaid

                It’s an important point, though. I’ve been thinking of exactly that list of names recently, reflecting on how they are each being positioned as future candidates for highest possible offices.

                Compare them each to the crop of current Republican presidential candidates, for example. They are all better “qualified”–having the qualifications: being intelligent, bloodthirsty, Machiavellian, and unquestioningly elite-serving. I’d include HRC too.

      1. ChrisFromGeorgia

        I meant it in a non-gender specific way, but I get your point.

        I don’t exempt women from the capacity to be corrupt and evil.

  3. DJG

    The actions of the U.S.A. and the IMF are remarkably stupid. They might as well fly a 737 over the Atlantic and carpet the waters with 20-dollar bills. The Russians know that these tactics are sure to fail.

    And the Greeks and Portuguese are somehow not allowed to notice?

  4. human

    To clarify the condition: A civil war is prosecuted by beligerents for single control of a central government. What we have here is a colonial occupation by the use of force, just as in the US in 1860 and currently in Palestine. I’m certain that aware readers will be able to add to this short, example list.

    1. James Levy

      Yes, because blacks were happy being slaves until those evil Abolitionists riled them up and deluded them into thinking they should be free and equal citizens.

      Oh, and you mean 1861 dumbhead–the war started with the firing on Fort Sumter in April 1861, as Lincoln had zero interest or ability to do anything about your beloved slavery when he won the election in 1860 other than preclude its movement into the new territories. but I guess because slavery was such a noble institution even that was provocation enough to split the union.

      1. human

        In order to discuss any situation responsibly, it is important to use terms that do not skew the narrative. In this case, the disproportionate use of political, economic and military force to achieve a result in which the opposing beligerents wish to assert a right of self-government is not a “civil” war, extremely, admittedly simplified as it is.

        Let’s call an occupation an occupation.

        1. DJG

          At the beginning of the American Civil War, the South had a better equipped military and better officer corps. It was one of the reasons for secession. I believe that James Levy clarified the situation for you.

          Two points:
          –Let’s call a civil war a civil war.
          –What is going on in Ukraine is not a civil war. It is a failed coup that continues to produce revenue for war profiteers.

  5. Jim Haygood

    Russia is a member of the IMF (as most countries are), but has only 2.39% of the votes:


    Politicizing long-standing IMF rules, as the U.S. and its co-conspirators allies have done, could lead to the demise of the IMF.

    After all, the IMF’s original mission of balance of payment lending under the Bretton Woods regime ended in 1971, when all currencies were turned loose to float.

    Like NATO, the IMF should have declared victory and gone home.

  6. ltr

    This is an amazing essay. I finally understand how determined the United States is to economic punish any country that will not do its bidding and reward any country that does its bidding, no matter the nature of the country or the situation. “Power economics,” nothing else matters.

    1. jrs

      It’s a good essay, Hudson’s stuff often is and he sometimes shows up around these parts.

      Now I want to read a book on what the full history of the world bank and IMF is, yea they are neoliberal and push austerity, that much I know, but it gets richer and deeper here.

  7. T

    Amazing how the rules have been changed for Ukraine. I’d love to see some high-profile commentators from Greece, Portugal & Ireland on this topic.

  8. susan the other

    It all looks like we want to have WW3 with Russia and China no matter what. So naturally we’ve got to gain control of MidEast oil first. This all only makes sense if capitalism itself can no longer survive. (duh). Wouldn’t it be nice if the rest of the world, especially the EU, would just say No way? The EU has managed to move the fight away from Europe and on to Syria, so maybe now it doesn’t care. We have decided to either make the world capitalistic (since “capitalism” hasn’t been used for 50 years) or die trying. And it has become obvious that capitalistic is imperialistic, by necessity. After all, to keep up the comparison, what kept imperialism alive… war. And the Cold War served as a war on slow burn by gradually impoverishing anything even slightly socialistic.

  9. andyb

    It will be interesting to see Putin’s response. Will he shut off gas supplies, or quadruple the price? He could even nuke Kiev using a muslim patsy, just like what the neocons do. That certainly would be Karma.

  10. Vladimir Putin

    There appears to love for Putin among many europrogressives.

    This is somewhat strange, as the USSR has long ago disappeared, and routinely equated to the Nazi period by historians.

    Doubly strange when Putin has been funding the EU far right.

    And, europrogressives now widely support for the Russian military invasion of Ukraine.

    So what are we to think when Yves opposes an IMF don’t decision?

    Should we accuse Yves of being a useful idiot?

    Or should we see the IMF decision as an instrument directed at avoiding nuclear war in Europe, and as part of the sanctions led slow strangulation of the Russian economy, to force change by Russians from within?

    1. Yves Smith Post author

      My, we have an utter absence of proof that 1. Far right wing parties are pro-Russia (yes, some, most importantly Front National are, but this is hardly a given) and 2. that Russia is funding any of these parties.

      In fact, Soros has been funding the far right in Ukraine for years. Soros brags (I’ve seen this first hand) about how everyone in the current government in Kiev has gotten a grant from him or has a very close relative who has. While voters in the western part of Ukraine are not neo-Nazi sympathizers to a large degree, neo-Nazis are disproportionately represented in government.

      Similarly, the far right parties in Eastern Europe are often anti Russia. Go look at Poland:


      The articles I find that fulminate about links between the far right and Russia in countries like France and Slovakia where the far right is sympathetic to Russia do not provide any evidence of or even discuss funding, but focus on meetings with or positive statement by Putin, and interviews on RT.

      In other words, we present factual information, and you come and make stuff up. And we are supposed to take you seriously?

  11. Gaianne

    Thanks for this article.

    I am glad to see this particular abuse of IMF power getting some attention.

    It certainly looks like we have entered a new era of transition. Probably toward global war.


  12. RBHoughton

    Irritating to have a commentator assume the identity of V Putin to say silly things. Is it possible to require commentators to use real names?

    1. Yves Smith Post author

      There’s no way to verify “real names” unless I use one of those really horrible verification systems like (shudder) Facebook or Google. I won’t comment on any site that requires me to use them on the general principle that I don’t wan’t to hand the surveillance industrial complex information about what I do on a silver plater, and therefore I don’t want to subject readers to that either.

      1. TomDority

        I agree, it is personal choice weather to maintain ones privacy or not. As far as buying into the repercussions of using your real name or not is, for me, a matter of knowing the Patriot act and other transgressions upon the freedoms afforded by the constitution to include freedom of speech, can easily be breached by the false war on terrorism that is over used by politicians that feel their sole reason and foremost calling is to protect American lives …..instead of their sworn oath to uphold the consitution. Be for warned that I am going off on a rant. We spend at least 50,000 times the amount on terrorism prevention per life than we do on a multitude of other preventable death causes. I will not vote for any politician who campaigns on fear….if they are representing me, they had better not be playing the bravado/patriot/I’m protecting you card. I am not asking my representative to protect me from some exaggerated self serving self liking war on terrorism….it is a cowardly device to obtain power and represent me as a coward to the world. Uphold the constitution, prosecute the fraudsters and jackals that funk up the barrel of apples, get a spine and do something for our future and progress and peace…..quit kissing the asses of the “priveleged, cowardly, misdirected clueless oligarchs who take the lazy and antisocial methods to riches” well I can’t go on because I have other things to do. Nellie real economics is a plague and we all know that. Call the king with no clothes nude.

        1. Yves Smith Post author

          I also neglected to mention something very important: we’ve had industry insiders provide us with very important intelligence in comments. Some would do it through obviously fake names and real e-mail addresses they’d set up solely for dealing with NC. We got two absolutely critical sources for our breaking the Magnetar story that way.

    2. fajensen

      It’s just not good internet hygiene to use real names and good passwords on web sites.

      First, You gotta cut yourself some slack and leave a bit of deniability on the table, also things that were said in “while the blood was up” will stay on the net forever and maybe it is not so good if they can undeniably be attached to “you” “later”, when the definition of “terrorist” (or whatnot) is loosened even further.

      Second, Every site gets hacked and user details leaked all over. We don’t want our real names on fake credit cards and loan applications. Web masters don’t want the hassle – if they have any sense at all – of trying to store and manage personal information securely and legally. If nothing useful is stored, that data has no value and the loss means nothing.


    Old School real politik: Containment & cold war practices & policies never ended:
    “f. Covert operations pertaining to economic warfare will be conducted by the Office of Special Projects under the guidance of the departments and agencies responsible for the planning of economic warfare.”

    Foreign Relations of the United States, 1945–1950
    Retrospective Volume, Emergence of the Intelligence Establishment, Document 288
    288. Note by the Executive Secretary (Souers) to the National Security CouncilSource
    Washington, June 15, 1948.
    NSC 10/1
    Reference: NSC 10

  14. John Roberts of UK

    The International Monetary Fund and it’s related agencies have always been dominated by the United States and from the very beginning more or less did it bidding. It’s therefore only to be expected that the IMF should slavishly follow policies that benefit the United States to the detriment of others. Since the collapse of Bretton-Woods and the abandonment of the gold standard though, the USA has been living on borrowed time. Essentially bankrupted by the costs of the Vietnam war which precipitated it all, the country has been living on credit ever since, a situation allowed by the petrodollar and the need of other countries to pay for their oil and gas in US dollars. This era, however, is very rapidly coming (has already come?) to an end and the de facto bankruptcy of the USA can no longer be hid, nor can its looming inability to finance its massive military-industrial complex and the Keynesian military pump-priming of its economy that has allowed it to become so powerful since World War Ⅱ. The gloves are coming off and outright brute force is now very much the only option it has left if it is to continue to enforce its dominance throughout the world.

    In effect, the USA has become a lawless rogue, indifferent and contemptuous of the rule of law, meaning all law – national, international and local. And that corruption spreads to its clients and allies.

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