US and European warnings about a possible Russian military attack on Ukraine may have averted an invasion for now, but the statements have also caused collateral damage to Ukraine’s economy, officials in Kyiv and experts say.
President Volodymyr Zelenskyy last week blamed war talk from the United States and other foreign partners for scaring off investors and causing the country’s currency to fall by 10%. U.S. and Western officials, however, believe the warnings helped alert the world to the danger posed by Russian troop build-ups and that Moscow’s threatening actions are to blame for any turmoil in the markets.
“It’s a new way to prevent aggression – to reveal the Kremlin’s plans before it manages to do anything,” said Hlib Vyshlinsky, executive director of the Center for Economic Strategy think tank based in Kyiv.
“However, the constant stream of scary predictions and warnings about Ukraine is having a negative impact on our economy,” he said.
The value of the Ukrainian currency has fallen since the reinforcement of troops in recent months. On Jan. 28, it was trading at 28.6 per US dollar in January, near a record low.
Foreign investors have also unloaded Ukrainian bonds, driving their interest rates to around 25% and making it almost impossible for the government or private companies to borrow money in international markets, said Anders Aslund, researcher principal at the Stockholm Free World Forum.
Zelenksyy’s government had to dip into foreign currency reserves to shore up the hryvnia, and it is now seeking financial support from the United States and other governments to prevent further damage.
Ukrainian Finance Minister Serhiy Marchenko suggested this week that the United States could guarantee bonds issued by the Kyiv government due to the prohibitive cost of borrowing in international markets.
Mykhailo Podolyak, an adviser to Zelenskyy’s chief of staff Andriy Yermak, told NBC News that the “growing threats” from Russia and other actions appear to be aimed in part at undermining Ukraine’s economic stability and that the international aid could help protect the Ukrainian economy.
“Concrete measures in support of Ukraine could be a perfectly logical reaction from Western partners, in particular through the mechanism of credit guarantees and appropriate financing both at the bilateral level and at the level of international institutions” , Podolyak said.
The Biden administration plans to provide financial support to Ukraine beyond the half-billion dollars in development and humanitarian assistance it provided last year, a Security Council spokesperson has said. National White House.
“We are exploring additional macroeconomic support to help Ukraine’s economy amid pressure from Russia’s military buildup,” the spokesperson said, without giving further details.
Unlike in 2014, when Russia invaded and seized the Crimean Peninsula, Ukraine’s economy is better positioned to withstand the pressure on its currency and bonds. According to Aslund and other experts, it has built up a cushion of foreign currency reserves of $31 billion, the highest in a decade, and it has manageable budget and current account deficits.
The European Commission on Tuesday announced plans for a $1.35 billion aid package for Ukraine through long-term loans, and the British government said it planned to provide $120 million. additional foreign aid to Kyiv. Ukraine can also draw funds from the International Monetary Fund under a financing program agreed last year.
The latest commitments from European partners have helped calm the currency market in recent days, Zelenskyy told reporters on Wednesday during a joint press conference with visiting Dutch Prime Minister Mark Rutte.
Besides dire warnings from Washington about a likely Russian invasion, “decisions regarding the departure of some embassy staff and the advice of some foreign nationals to leave Ukraine were also clearly premature and exaggerated,” Podolyak said. .
Last month, the United States and the United Kingdom both ordered the families of their embassy staff to leave Ukraine, a move that has angered Ukrainian officials and members of parliament.
Danylo Hetmantsev, a member of parliament from Zelenskyy’s Servant of the People party, criticized the evacuation of dependents at some foreign embassies, saying it had helped scare financial markets. He also wondered why Western governments had a much less dramatic response when Russia massed large numbers of troops on the border last year.
“Why did our partners remain silent in April when we had the same number of soldiers at the borders?” he said.
But Podolyak said financial markets appeared less volatile this week after the Biden administration toned down its “panic rhetoric” and the two governments synchronized their approach.
Former US diplomats say the Biden administration was not reckless when it warned of the dangers of Russia’s rise and that calling on Moscow’s actions was crucial, even if it inflicted temporary damage to the Ukrainian economy.
“I can only speak of our intent and our responsibility, and we feel it’s important to be open and candid about the Russian threat,” White House press secretary Jen Psaki said Monday.
Administration officials also said they believed it was vital to expose any Moscow-made pretexts to justify possible military aggression and not wait until it was too late.
The administration said Thursday it had information about a Russian plan to fabricate a pretext for an invasion of Ukraine using fake video involving actors.
State Department spokesman Ned Price said the United States had released information about the plan to expose “Russia’s destabilizing actions toward Ukraine and to deter Russia from continuing this dangerous campaign and eventually launch a military attack”.
The White House, however, admitted on Wednesday that it had adjusted its language and no longer qualified the possibility of a Russian military offensive as “imminent”.
“We stopped using it because I think it was sending a message that we had no intention of sending, which was that we knew President Putin had made a decision,” Psaki told reporters. journalists.