About the author: Edward Price is a Director at Ergo, a global information, consulting and forecasting company. A former UK trade officer, he also teaches at New York University’s Center for Global Affairs.
Kyiv, Ukraine – Air raid sirens. Air-raid shelter. Captured Russian tanks. All are plentiful in this war-torn city. But Kyiv is also a working city. And on the last Friday in March, the city’s boulevards pulsate. Were it not for the occasional soldier and the golden spiers of the turquoise Orthodox churches, I could be in France. Only Kiev seems calmer than rebellious Paris.
I strolled downtown to meet Sergii Marchenko, Ukraine’s 42-year-old finance minister. He has agreed to a rare interview and met at a small coffee shop next to a popular hotel. Inside, chic lighting and modern European decor liven up the bare brick walls. While I’m waiting, it seems analogous to me. The Ukrainian economy is trying to create something new. But it must build on its Soviet past – and fight against it.
When he arrives, Marchenko grabs my hand. “I recognize you by your face,” he says, waving me over to his table. “Please sit down.” As a triathlete, he is in good shape and looks relaxed. But he has a serious aura. A helper who has settled down next to us is typing endlessly on a smartphone. After all, war is on, and this is the man responsible for funding it.
We sit. I’ll start with a trillion dollar question. Will now tighter US monetary policy undermine US foreign policy of sending money to Ukraine? Marchenko has a PhD. He clicks into economist mode.
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“Of course, looser monetary conditions would be better for Ukraine’s war effort than the tighter conditions we are seeing now. Even without a war in Europe, the existing debt and high borrowing costs would be a problem for many countries.”
He speaks English deliberately and chooses his words carefully. But when he turns to the question of international support for Ukraine, there is an air of frankness about it.
“We try to tell our international partners, guys, if you want to give Ukraine a loan, we’ll pay you back. But consider pausing or forgoing interest payments. The payments will be too high for the Ukrainian economy.”
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He has an argument. Private sector borrowing in Ukraine is precariously expensive. The country issues bonds that pay out around 18% to 19.5% interest, depending on the term. As far as raising capital goes, it’s pretty expensive. But Marchenko does not complain.
“One has to say that it is a fair price, at least from a market point of view. We are at war. Just look at our CPI.” Inflation is forecast at over 18%.
I propose that this dynamic poses an enigma. Ukraine is waging a war for democracy and free markets. But Ukraine would rather opt out of the free market when it comes to international finance. He nods, acknowledging the point. “Yes, but specifically for the interest on the money we borrow from other nations.”
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We turn to the bank panics in the US and Europe. Is he afraid of contagion? How exposed is Ukraine’s financial system to the turmoil in the west? He smiles and puts his cup down.
“You know, whether Ukraine willy-nilly exposure to the international financial system is limited. We are not fully connected to global capital markets or developed financial systems.”
We uncovered another irony. Perhaps one benefit of Soviet heritage is some immunity to modern financial crises. I offer the thought and he looks at me politely. “I don’t know anything about that,” he says. “But it is better for us to increase international and private ownership of banks in Ukraine.” Currently, the government owns 60% of the sector.
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A theme emerges. Ukraine is committed to internationalism. Ukraine is committed to further privatization and market-driven reconstruction. I’ve heard that from everyone here. But Ukraine also needs Western help. And if the West wants a European ally in Ukraine, not a Russian vassal, it needs to send more money and arms for free. That annoys some. I’ve heard murmurs here among international guys about why, for example, Kiev itself isn’t fully mobilized.
Why, I ask, are there still beautiful cars on the streets when Ukraine receives international funds? Why do we enjoy this coffee? Marchenko leans forward.
“You know, let’s compare March 2023 to March 2022 a year ago. There were Russian troops in districts of Kiev. There were about four times fewer people. I was there. It was a ghost town.” He waves an illustrative hand through imaginary empty streets. “Well, that may have looked like an economy at war, but it’s much better that we can sit here today and pay sales taxes on these coffees. That actually finances the war.”
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Another good point. To paraphrase President Volodymyr Zelenskyy: Ukraine’s wartime economy doesn’t need analysis, it needs activity. And Ukraine aims to fund its war with fiscal rather than monetary policy.
Marchenko, for example, lives his life despite the brutal invasion of Russia. His family is here. He cycles. He runs. “All Ukrainian politicians should be in the country, as should their families. I am not criticizing anyone else. But that is my view – apart from anything else, it shows that we are laying the right foundations for the future of our country and western democracies.”
The coffees are now drained. Time is running out. Before we go, Marchenko wants to convey that the West’s shocking and awe-inspiring sanctions are still not enough to slow down the Russians. “They’re quite adept at circumventing sanctions,” he says, “but the US Treasury’s oil cap was very sophisticated. It helped bring down the price of oil and made it difficult for Russia to export.”
We end with a history lesson. “The Ukrainians are not like the Russians,” he says, “we value individual freedom and the family.” That’s why Russia is trying to destroy an alternative social model on its doorstep. Ukraine, with its energy, IT skills and agriculture, would be an immense asset to the European Union. And that would be in contrast to the Russian quality of life. Western funds have helped. But more wouldn’t hurt. “We are very grateful to the Americans and Europeans,” he says. “We can fight and win. We can protect democracy.” He means it. Then he gets up, shakes my hand tightly again and is gone.
I walk home through Kiev’s busy streets. Whatever war looks like – brutal on the front lines, subdued in the cities – this is a European place. Keeping it that way is worth any cost.
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