The opportunities presented by Ukraine have not gone unnoticed. From BlackRock (whom Zelensky has officially welcomed) to European funds, the country is being watched by financial giants and international organizations determined to impose a favorable climate for private investment. The menu is deregulation, privatizations and “efficient taxation”.
The Ukrainian government has not waited for the end of the war to implement these reforms.
The end of the war will not be the end of the ordeal for Ukraine. In recent months, the juicy business of rebuilding post-war Ukraine has whetted appetites.
Last November Zelensky signed a memorandum with BlackRock that allows the firm’s Financial Council – a unit of consultants designed to work in crisis countries – to advise its finance minister on a roadmap for rebuilding the country. In BlackRock’s words, the goal of the agreement is to “create opportunities for public and private investors to participate in the future reconstruction and recovery of the Ukrainian economy.”
In the Ministry’s press release, officials are more direct and explain that they want to “attract primarily private capital.” The agreement formalizes a series of talks held last year between Zelensky and BlackRock Chairman Larry Fink, during which the Ukrainian stressed the need to make the country “attractive to investors.” According to a statement from the president’s office, BlackRock had already been advising the Ukrainian government “for several months” at the end of 2022.
Both sides agreed to focus on “coordinating the efforts of all potential investors and participants” in Ukraine’s reconstruction and “channeling investments into the most relevant and promising sectors.” This is not the first time that BlackRock’s Financial Council has acted in this way. BlackRock is an advisor to states on privatizations, “very active in countering any attempts to regulate them.” The company used the 2008 crisis – itself the result of the junk mortgage-backed securities in which Larry Fink had become a master – to increase its power and influence policy makers, through conflicts of interest, revolving doors between the private and public sectors and influence peddling.
In the United States, BlackRock has attracted considerable controversy for its management of the Federal Reserve’s bond market investment program during the pandemic, which resulted in half of the program’s funds being invested in… BlackRock.
Ukraine was already in a favorable dynamic for foreign investment. In December last year, when Kiev and BlackRock had already been negotiating for several months, the Ukrainian Parliament adopted legislation favorable to real estate development that had been blocked before the war. It aims to deregulate urban planning legislation for the benefit of the private sector, which has been coveting the demolition of historic sites.
It adds to Parliament’s earlier attacks on Ukrainian labor legislation, inherited from the Soviet era, which legalized 10-hour contracts, weakened the power of trade unions and plunged 70 percent of the workforce into informality. These legislative changes had not been suggested to Parliament by BlackRock, but by the British Foreign Office and supported by Zelensky’s party. The latter argued, “Extreme regulation of employment contradicts the principles of the self-regulating market […] it creates bureaucratic barriers to employee self-fulfillment.”
“These first steps toward deregulation and simplification of the tax system are emblematic of measures that have not only withstood the impact of the war, but have been accelerated by it,” said The Economist. “With a domestic and international public in favor of Ukraine’s reconstruction and development,” the paper surmised, reforms would accelerate after the war, anticipating further deregulation that would “smooth the flow of international capital into Ukrainian agriculture.” The recipe for success, it claimed, was further privatization of “loss-making public enterprises” that “weigh down public spending.” This final phase of privatization, The Economist noted bitterly, “had come to a halt with the outbreak of war.”
However, The Economist should not have worried. Privatization is one of the main priorities of post-war Ukraine. Last July, a myriad of major European companies and Ukrainian officials attended the Ukrainian Reconstruction Conference, designed to measure the progress of the country’s privatization, imposed by the West after the 2014 Coup.
As the Conference’s policy conclusions bulletin made clear, the post-war state will not need BlackRock on its side to carry out this plan of speculators and vultures. Among the policy recommendations are “lower government spending,” “an efficient tax system,” and, more generally, a move toward “deregulation.” It advises further “reducing the size of government” through further privatization, further liberalization of capital markets to create a “better investment climate, more welcoming to direct investment from Europe and the world.”
Reading these documents evokes the wildest capitalist voracity. Ukraine presents itself as a business-friendly start-up, thanks in large part to Westinghouse’s nine U.S. nuclear reactors. It has nothing to envy to the slogan “a country in a smartphone”, proposed by Zelensky himself three years ago.
A country in crisis turns to governments and financial institutions for help. The story is not new. Then comes the phase when it discovers that the funds it desperately needs are obtained at the price of increasingly less desirable conditions. Then begin reforms aimed at dismantling public investment in the economy, opening the domestic market to foreign capital and increasing the suffering of the population.
This is a repetition of a scenario that Ukraine has already experienced. After the 2014 Coup, the IMF and Western representatives, such as Biden, then Vice President of the United States, urged the Kiev government to carry out structural reforms, such as cutting gas subsidies for Ukrainian households, privatizing thousands of state-owned enterprises, and lifting the long-standing moratorium on the sale of agricultural land. During the pandemic, under intense financial pressure, Zelensky approved the latter request.
Unfortunately, the end of the war is likely to trigger new assaults in Ukraine, led not by men in military uniform, but in three-piece suits.
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