About the author: Edward Price is principal at Ergo, a global intelligence, consulting, and forecasting firm. A former British trade official, he also teaches at New York University’s Center for Global Affairs.
KYIV, Ukraine—Air raid sirens. Bomb shelters. Captured Russian tanks. All are plentiful in this war-stricken city. But Kyiv is also a city at work. And on the last Friday in March, the city’s boulevards buzz. Were it not for the occasional soldier, and the golden turrets of turquoise Orthodox churches, I could be in France. Only Kyiv seems calmer than riotous Paris.
I’ve strolled downtown to meet Sergii Marchenko, Ukraine’s 42-year-old finance minister. He’s agreed to a rare interview and has chosen to meet at a small coffee shop attached to a popular hotel. Inside, chic lighting and modern European decor enliven bare brick walls. As I wait, this strikes me as analogous. Ukraine’s economy is trying to create something new. But it must build on—and fight against—its lingering Soviet past.
When he arrives, Marchenko grips my hand. “I recognize you by your face,” he says beckoning me to his table. “Please sit down.” A triathlete, he’s in good shape and looks relaxed. But he has a serious air. An aide plunked down next to us types away endlessly on a smartphone. There is, after all, a war on, and this is the man responsible for financing it.
We sit. I begin with a trillion-dollar question. Will U.S. monetary policy, now tighter, undermine the U.S. foreign policy of sending money to Ukraine? Marchenko has a doctorate. He clicks into economist mode.
“Looser monetary conditions would, of course, be better for Ukraine’s war effort than the tighter conditions we are now seeing. Even without a war in Europe, existing debt levels and high borrowing costs would be a problem for many sovereigns.”
He speaks deliberately, in English, and chooses his words carefully. But when he turns to the issue of international support for Ukraine, there’s a hint of frankness.
“We are trying to tell our international partners, guys, if you want to provide credit to Ukraine, we’ll pay you back. But consider pausing or waiving interest payments. The payments will be too high for Ukraine’s economy to bear.”
He has a point. Ukraine’s private sector borrowing is precariously expensive. The country is issuing bonds that pay out about 18% to 19.5% interest, depending on maturity. So far as raising capital goes, that’s pretty costly. But Marchenko isn’t complaining.
“You have to say it’s a fair price, at least from the market’s perspective. We’re at war. Just look at our consumer price index.” Inflation is forecast at above 18%.
I suggest these dynamics pose a conundrum. Ukraine is fighting a war for democracy and free markets. But Ukraine would rather opt out of the free market where international finance is concerned. He nods, conceding the point. “Yes, but specifically for interest rates on that money we’re borrowing from other nations.”
We turn to the banking panic in the U.S. and Europe. Is he worried about contagion? How exposed is Ukraine’s financial system to the turmoil in the West? He smiles and sets his cup down.
“You know, for better or worse, Ukraine’s exposure to the international financial system is limited. We’re not fully connected to global capital markets or to developed financial systems.”
We have uncovered another irony. Maybe one upside to the Soviet legacy is some immunity to modern financial crises. I offer the thought and he gazes at me politely. “I don’t know about that,” he says. “But it’s better for us to increase international and private ownership of banks in Ukraine.” As things stand, the government owns 60% of the sector.
A theme is emerging. Ukraine is committed to internationalism. Ukraine is committed to further privatization and to a market-led reconstruction. I’ve heard this from everyone here. But Ukraine also needs Western aid. And if the West wants a European ally in Ukraine, not a Russian vassal, it needs to send more money and weapons for free. This irks some. I’ve heard murmurings among international types here about why Kyiv itself, for example, is not fully mobilized.
Why, I ask, if Ukraine is receiving international funds, are there still nice cars in the streets? Why are we enjoying this coffee? Marchenko leans forward.
”You know, we should compare March 2023 with March 2022, a year ago. There were Russian troops in districts of Kyiv. There were about four times fewer people. I was here. It was a ghost town.” He waves an illustrative hand around imagined empty streets. ”Now that may have looked like an economy at war, but it’s far better that we can sit here together, today, and pay sales taxes on these coffees. That actually funds the war.”
Another good point. To paraphrase President Volodymyr Zelensky, Ukraine’s war economy doesn’t need analysis, it needs activity. And Ukraine is aiming to fund its war with fiscal rather than monetary policy.
Marchenko, for one, is living his life despite Russia’s brutal invasion. His family is here. He cycles. He runs. “All Ukrainian politicians should be in the country, as should their families. I’m not criticizing anyone else. But that’s my view—apart from anything else, it shows we are building good conditions 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 shock-and-awe sanctions still are not enough to stymie the Russians. “They are evading sanctions with quite some craftsmanship,” he says, “but the U.S. Treasury’s oil cap was very sophisticated. It helped decrease the price of oil and made it harder for Russia to export.”
We end on a history lesson. “Ukrainians are not like the Russians,” he says, “we prize individual freedom and the family.” Because of that, he says, Russia is trying to destroy an alternative social model on its doorstep. Ukraine, with its energy, IT skills and agriculture, would be an immense plus for the European Union. And that would contrast with the Russian quality of life. Western funds have helped. But more would not go amiss. “We are very thankful to the American and European people,” he says. “We are able to fight and win. We can protect democracy.” He means it. Then he stands, gives me another firm handshake, and is gone.
I walk home through Kyiv’s bustling streets. Whatever war looks like—brutal at the front, muted in the cities—this is a European place. Keeping it that way is worth any price.
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