RUSSIA HAS not abided by the latest cease-fire in eastern Ukraine. Instead it has taken the opportunity to send more weapons across the border, and its forces continue to shell Ukrainian positions. Vladimir Putin, who this week ordered new military exercises in western Russia, may be preparing an offensive to seize more territory. But he also has a more subtle means of attacking the beleaguered pro-Western government in Kiev. A shaky financing package backed by Western governments and the International Monetary Fund has given him an opening.
The IMF recently determined that Ukraine needs at least $40 billion to keep its currency afloat and meet external debt commitments in the next four years. The fund pledged $17.5 billion, but Western donors have offered only $7.5 billion. That leaves the democratically elected government of Petro Poroshenko needing to extract $15 billion in debt relief in the next several months from Ukraine’s foreign bond holders. The largest of those happens to be Russia, which holds a $3 billion Ukrainian eurobond.
Not surprisingly, Mr. Putin’s ministers have adopted a hard line, saying they expect Ukraine to pay in full when the bond falls due this year. Other bondholders, who Ukraine will ask for lengthened terms as well as a write-down of principal, object to any deal that does not include Russia. That puts Natalie Jaresko, Ukraine’s American-born finance minister, in the position of attempting to negotiate relief from a regime that currently has tanks and troops deployed on her country’s territory and seeks nothing less than the destruction of her government.
Russia has been handed this leverage by Western leaders whose lofty rhetoric about supporting Ukraine hasn’t been reflected in budgets. Like the European Union, the United States is offering Ukraine $2 billion in loan guarantees, a paltry sum compared with the bailouts that have been delivered to other allies in crisis. Like German Chancellor Angela Merkel, White House officials deflect calls for providing Ukraine with defensive weapons by saying it’s more important to ensure the success of the Poroshenko government. However, the Obama administration isn’t proposing to give Ukraine even enough resources to pay its debt to Moscow, much less stop its army.
While saying Ukraine is grateful for the help it has received, Ms. Jaresko told us, “it’s hard to believe there hasn’t been more support.” She points out that her adopted nation of 45 million has literally bet its future and the lives of thousands of its citizens on the embrace of Western democracy and the free-market system. Mr. Putin is intent on reversing that choice. The future of liberal values in much of Europe consequently depends on whether the West will come to their defense in Ukraine.
The Poroshenko government has not asked for a no-strings handout; it knows it has to match aid with radical and painful reforms. It is imposing drastic energy price increases on consumers and has launched sweeping reforms of the police and judiciary. It has not yet proven it can succeed, but it deserves more than the half-hearted help it has so far received from the United States.