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Stabilizing Ukraine

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Even before geopolitical tensions unleashed currency flight, bank deposit withdrawals and surging risk premiums, Ukraine faced serious challenges. The crisis there has been years in the making, reflecting deep structural problems that left it vulnerable to periodic funding shortfalls and near the bottom of transition country league tables. Thus, any program to tackle the immediate crisis in Ukraine must inevitably come to grips with this legacy.

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Priorities in a difficult setting

Ukraine’s recently unveiled economic adjustment program, with financial support from the Fund and the wider international community, takes as given that output will contract and inflation will remain high in the initial phases of the program. This is not a choice. It is the best that can realistically be expected in exceedingly difficult circumstances.

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The program consists of five main elements to stabilize the immediate situation and strengthen the prospects for growth in the medium to long term:

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A promising start

No one can predict how the political turmoil will play out or what new forces will be brought to bear on the situation. The risks are manifold, and from both outside (e.g., the conflict with Russia) and within (e.g., the reform effort yielding to entrenched interests). But if Ukraine is to stand any chance of coming through this economically, it will need to muster every last measure of political unity and determination to implement its ambitious economic program. The current government and leading candidates in the upcoming elections have indicated their support for key program objectives and policies, and major elements of the program have been implemented up front. This is a promising start to a still difficult and complex situation.