Motyl: What Russia Can Expect in Ukraine’s Rust Belt

In their search to maintain control, Russians would quickly discover that they are in possession of economically unviable provinces that cannot survive without massive infusions of rubles. According to a detailed Ukrainian study of how much Ukraine’s provinces paid into and received from the central budget in the first half of 2013, Crimea, Donetsk, Kherson, Luhansk, Mykolaiv, and Zaporizhzhya represented an enormous drain on Kyiv’s resources: 22.82 billion hryvnia (around $2.5 billion, or 90 billion rubles). And that is only for the first six months of the year. Multiplied by two, the deficit amounts to 45.64 billion hryvnia (about $5 billion, or 180 billion rubles).

In 2014, Russia expects its budget revenues to be around 13.6 trillion rubles (around $375 billion); its expenditures are supposed to total 14 trillion rubles ($380 billion). That amounts to a deficit of 400 billion rubles ($11 billion). Even without extra development funds or the costs of an occupation, annexing Ukraine’s southeast will raise Russia’s deficit by 45 percent.

The bad news gets worse for Russia. Luhansk and Donetsk provinces are home to Ukraine’s loss-making coal industry. Kyiv spends between 12 and 14 billion hryvnia(around $1 billion–$1.5 billion, or 47 billion–55 billion rubles) annually to support these mines. Will Russia back these enterprises even as they compete with more economically produced coal from Russia’s Kuzbass? It will have to: As Kyiv knows from experience, firing thousands of coal miners could spark massive civil unrest. Moscow will also have to pay them their wages on time. In 2013, wage arrears reached a total of 135 million hryvnia (about $15 million, or 530 million rubles) in Donetsk and Luhansk.

Dr. Alexander Motyl is a professor of political science at Rutgers-Newark. A specialist on Ukraine, Russia, and the USSR

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Verstyuk: Borrowing from Russia to pay Russia

If Ukraine starts paying Russia for gas using Russian money, it will ultimately enter into a vicious circle that will lead to Moscow fully engaging in Ukrainian policy, said Yurchyshyn of Razumkov Center.

Given the heavy-handed politics contained in the Russian borrowing conditions – the bailout package is also contingent on quarterly reviews – the Ukrainian government now has more reasons to contact the IMF or the European Union and ask for an alternative financial assistance package.

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