More Ukraine experts warn of financial consequences of martial law

A swelling number of Ukrainian financial experts are
warning about the consequences of martial law having been introduced in ten
regions. Martial law will shave three percentage points off Ukraine’s 2019 GDP
growth to about 3% yoy, estimated on Dec. 4 Mykhaylo Kukhar, the director of
the Independent Macroeconomic Analysis Group. Several foreign companies have
already postponed their investment plans in Ukraine for 2019, he said. In
particular, Ukraine could lose USD 100-200 mln in investment per month,
estimated Oleg Ustenko, the executive director of the Bleyzer Foundation. Such
losses will place devaluation pressure on the hryvnia, he said.

Alex Danylyuk, the former finance minister, agreed on
Dec. 4 that devaluation pressures will increase, adding that martial law
threatens the fulfillment of the big privatization of state enterprises that
has been planned. “In considering the 2019 budget, it’s necessary to review
privatization revenues. It’s guaranteed we’ll gain none at all,” he told the
nv.ua news site. Introducing martial law doesn’t resolve any of Ukraine’s key
problems, said Volodymyr Fedorin, a co-founder of the Bendukidze Free Market
Center in Kyiv. “Refusing to uphold basic rights and freedoms, even in words,
certainly won’t make Ukraine attractive for investors,” he told the nv.ua news
site. “It will be much easier for Putin to take a starving, poor Ukraine,
stripped of its prospects and reeling from the flight of its most active
citizens.”

Among Ukraine’s first business leaders to point out
the economic losses from martial law being introduced was Igor Mazepa, the CEO
of Concorde Capital. In a column published on Nov. 28 on the pravda.com.ua news
site, Mazepa estimated economic losses as high as USD 500 mln, a large amount
considering Ukraine’s 2017 GDP was about USD 112 bln. Among the consequences,
“it will all lead to money outflow from the banking system, where it would have
multiplied and create added value for the economy,” he wrote.

Zenon Zawada: Further
economic losses from martial law pose an interesting quandary for Petro
Poroshenko’s re-election bid. The president is unpopular for the very reason
that voters associate him with the war and its related loss in quality of life
and living standards. Yet in provoking the conflict with Russia near the Kerch
Strait and imposing martial law, Poroshenko is again banking on his military
position against Russia for public support at the expense of a worsening
economy. So the very factor that is causing his unpopularity will either make
or break him.

At this point, it looks as though Poroshenko will
be able to qualify for the second-round runoff with his current electoral
strategy. And if he sees his chances slipping, he can attempt to extend the
martial law, in one way or another, in order to influence the elections in a
myriad of direct and indirect ways. Even without martial law, he has extensive
state resources to manipulate. Poroshenko is playing the elections with the
expectation that fears of expanded Russian aggression will trump economic concerns,
which is a re-election strategy that could just work.