Monday, September 1, 2014

Ukraine’s economy: Broken down -

Plumes of smoke darken the sky above a sunflower seed crushing factory outside Donetsk, the largest stronghold of the Russian-backed separatists surrounded by Ukraine’s advancing army. “It was hit by Grad missiles,” says a rebel waving his machinegun as he guards a checkpoint next to a bullet-riddled bus.

The $80m plant, opened in 2000 by Cargill, was one of the first big greenfield investments into independent Ukraine, a symbol of a new era of more open markets and future prosperity. It was abandoned by the US agriculture group’s employees after being stormed by pro-Russian gunmen. Now ablaze, it is testament to the vast damage done to a war-torn and bureaucracy-choked economy slipping deeper into recession.

While the international focus in recent months has been on the armed strife in eastern Ukraine and the geopolitical stand-off with Moscow, another dilemma is looming large for Kiev and its western backers: Ukraine’s economy is in tatters .

At best, the International Monetary Fund and other western backers are likely to have to step in with more loans to help the government staunch its fiscal deficit. At worst, the $17bn IMF programme signed in April could fall apart, possibly forcing the country to default and restructure its debts. That would further deepen the economic turmoil in Ukraine and stain the reputation and credibility of the fund in the wake of its problematic Greek programme.

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