Bogotá — The shrill sound of sirens drifts over the phone during a conversation with former economic development minister and current president of the Kyiv School of Economics, Tymofiy Mylovanov, who remains in the Ukrainian capital in the midst of the ongoing war.
“Everything seems fine, but who knows?” says Mylovanov after a brief interruption of the call with Bloomberg Línea in which he addressed the economic and social challenges of the war that has driven at least 10 million people from their homes in the country, or about 25% of the population, according to United Nations. figures.
The war is inflicting hard-to-erase wounds on Ukraine, whose economy could plummet by as much as 35% this year if the Russian invasion drags on any longer, according to estimates by the International Monetary Fund (IMF).
Damage to infrastructure has already totaled more than $100 billion, including health, educational, residential and other buildings, while 90% of the country is at risk of “falling into poverty”, the U.N. has warned.
In Ukraine, 86% of companies have slowed down, reduced their production or even halted it as a consequence of the war, according to figures released by the Kyiv School of Economics.
But the consequences will extend beyond Ukraine’s borders, as the war threatens to subtract one point from global economic growth in the first year, and 1.4 points from the eurozone’s GDP.
The Russian invasion of Ukraine could threaten global food security and starve hundreds of millions worldwide (...) Ukraine and Russia together export about 30% of all wheat and about 18% of all corn in the world. Wheat is the key commodity for global food security.
Report by the Kyiv School of Economics
Despite ongoing negotiations, violence continues in the young European nation, which gained independence in 1991 after the dissolution of the Soviet Union, and since then has had to weather a variety of situations ranging from the emerging market crises at the turn of the century, to the subprime mortgage crisis in 2008-2010, and then the pandemic.
As Ukraine’s minister of economic development, trade and agriculture between August 2019 and March 2020, Mylovanov had to deal with the onset of the coronavirus pandemic, for which he says it was necessary to adjust supply chains and ensure that businesses could operate remotely, although he acknowledges that “it took some time to provide liquidity to the economy”.
The plan, he says, was to respond “quickly and early”, before Covid-19 contagion rates increased, with a view to avoiding damage to an economy that, despite those measures, contracted by 4% in 2020, after advancing 3.2% in 2019.
The war now threatens the country’s future, but despite the challenges Mylovanov believes that “the resulting permanent consequence will be the formation of an even stronger nation, because now society, the government, the political class and the army are much more united. So I think the nation is getting stronger”.
As for the economy, he said this will depend “on how the world comes together after the war to rebuild Ukraine. And I think it is the world’s responsibility to do that”, Mylovanov said, noting that much will depend on how much of the country’s productive apparatus “survives the war”.
“And what I mean is that in every industry you have to have some companies that remain operational (...) you have to have a good company from every part of the economy. If those companies are there you can scale following the war easily. However, if you lose some specific industries, all together, it will be difficult to recover.”
How Has the War Destabilized Europe?
Tymofiy Mylovanov, who also served as deputy chairman of the board of the National Bank of Ukraine from 2016-2019, says the war is going to destabilize at least three key components in the rest of the world, and in Europe in particular.
“One is logistics, especially supplies from China; two, energy, and three is food security,” causing a lasting effect as Ukraine is a key player in grain exports and especially in ingredients needed for fertilizer production, and which threatens Latin America’s agricultural output.
The food price index, which tracks monthly changes in international prices, averaged 140.7 points in February, up 3.9% from January and 24.1% above its year-ago level, according to the U.N. Food and Agriculture Organization (FAO).
World Food Security Under Threat
Not only is Ukraine’s food security threatened by the war, but that of the world, according to Mylovanov, who pointed out that Ukraine’s crop production accounts for 11% of the world wheat market, while Russia has between 16% and 18%.
In view of the setback suffered by the agricultural sector in the country, he sees the current harvests in Ukraine as being under threat, and which could put more pressure on food prices, already impacted by high inflation worldwide.
He highlighted the importance of Ukraine as one of the main sources for at least five of the 10 main cereals, including corn, wheat and barley. And linked to that is the issue of fertilizers, an issue he considers has not been given the attention it requires, and which could generate problems with crop productivity in regions such as Latin America, and which “will trigger all kinds of food problems”.
Asked about the situation in the domestic market, he said that grocery stores are mostly operating, but with the exception of cities that are currently under siege.
“It’s not the typical peaceful economy where you can get high-end products, but the basics are there and, in fact, it’s getting better.”
The Use of Cryptocurrencies
Cryptocurrencies have played an important role in the midst of the sanctions imposed on several companies and entrepreneurs with close ties to the Kremlin, and who have been isolated from the financial system as a result of the war in Ukraine.
To prevent organizations subject to sanctions from evading them, the G7 is closely monitoring transactions in cryptocurrencies, and have issued warnings to governments in this regard.
Mylovanov believes that despite its efforts, Russia will not be able to circumvent all sanctions by using cryptocurrencies, given the challenges that still exist in converting crypto operations into traditional economic activities.
And in the case of Ukraine, he says that people initially turned to cryptocurrencies as a safe haven amid concerns about the functioning of the banking system, but since this uncertainty has subsided and now that such entities are operational, investors are returning to traditional methods.
Ukraine implemented a law on virtual assets this year, laying the regulatory groundwork for the use of cryptocurrencies in a country that is considered the fourth in global adoption of crypto, according to Chainalysis’ The 2021 Geography of Cryptocurrency report.
According to that report, “a possible reason for the popularity of cryptocurrencies in Eastern Europe, and especially in Russia and Ukraine, is the generalized mistrust in institutions”, particularly in banks.
“Russia Must Concede, or Destroy Us’
Mylovanov also referred to his personal situation, and said that he will remain in the country fighting, explaining that Russia does not want to see his country as an independent entity, while Ukraine is determined to defend its autonomy.
“Russia has to concede, or it has to destroy us, it is an existential struggle for Ukraine,” the president of the Kyiv School of Economics said, and who believes that the Kremlin “bit off more than it could chew” by invading Ukraine and is therefore going to have “real problems”.
He believes that the duration of the war is also having a high cost for Russia, and that it will be difficult for it to extend its presence in the country due to a lack of critical supplies.
However, he does believe it is possible that “some desperate measures” will be put in place, including attacks on critical infrastructure, or the use of nuclear weaponry.
“But, you know, they just don’t have the economic or political stamina to let it go on for a long period (...) Russian soldiers will die at the same rate as they are now, there will be a lot of internal political problems,” Mylovanov said.
