Ukraine May Have to Choose Between Russia and the IMF to Avoid Collapse

Ukraine has found itself caught between a rock and a hard place, as the country's dwindling cash reserves could force it to make the tough decision of seeking support from either the International Monetary Fund (IMF) or Russia. Ukraine has found itself in a predicament because the country is dependent on the steel industry for much of its revenue and Russia for much of its energy. With steel prices down and Russian gas prices climbing, the country's finances are in trouble. At the current rate of spending, Ukraine could run out of money to finance its imports within 3 1/2 months. An excerpt of a National Bank of Ukraine report appeared in the Ukrainian Journal, stating that "as of March 1, 2012, forex reserves came to $31.049 billion in the U.S. dollar equivalent, which is sufficient to finance future imports of goods and services for three-and-a-half months. The NBU has paid back and serviced [loans made under] the stand-by arrangement," reads the report." With demand for steel cooling in China, it's unlikely that Steel prices will rise enough to offset rising energy prices any time soon. In fact, energy prices could be set to move even higher if Israel attacks Iran to stop the country from developing nuclear weapons or if the situation in Syria continues to worsen. While the recession that the euro zone is experiencing could help hold energy prices down, it could also depress steel prices, so Ukraine will be in a tight spot whether or not Europe's economy starts to grow again. According to an article appearing on the Business News Europe website, Ukraine's foreign exchange reserves are dwindling to the point that the country will soon have to choose between seeking help from the International Monetary Fund or Russia. The problem with seeking financial help from the IMF is that the organization has been placing a greater emphasis on democratic reform in countries that it aids. In order to receive help from the International Monetary Fund, Ukrainian President Viktor Yanukovych may have to release political rivals Yulia Tymoshenko and Yury Lutsenko from prison. Many of Yanukovych's critics in the West believe that the former prime minister and former interior minister are in prison on trumped up charges. Newly reelected Russian president Vladimir Putin would like nothing more than for Ukraine to spurn the West's demands and fall into the arms of Russia. If Ukraine were to form closer ties with Russia, then it could see the price that it has to pay for imported Russian gas drop drastically. However, relief on gas prices from Russia wouldn't come without a price and many Ukrainians fear that their country would give up much of its sovereignty if it were to accept a Russian invitation to join a Eurasian Union. Although Ukrainian President Viktor Yanukovych can't be happy with either of his two choices, the current state of affairs could soon force Ukraine to choose between the West and Russia if the country wants to avoid a financial collapse.