The Loan That Launched A Crisis

The Ukrainian conflict isn't just about politics.

As the carnage continues in Ukraine - with scenes of wounded protesters, raging fires, and armed police in full riot gear -- it's easy to forget the whole crisis was set off by a disagreement over a loan.

Late last year, with Ukraine's state coffers running low because of overspending on political priorities like subsidizing natural gas and increasing the wages of government workers, President Viktor Yanukovych faced a choice. The European Union offered a trade deal that promised to boost Ukraine's sluggish economy in exchange for harsh and politically unpopular austerity measures. Russia offered $15 billion and didn't ask Yanukovych to change much of anything. Unsurprisingly, he rejected the EU deal and opted for Moscow's bailout instead. Thousands of angry Ukrainians took to the streets in protest, and they haven't left.

Those early demonstrations were peaceful, but Ukraine has seen a spasm of bloodshed in recent days. Yanukovych called for a truce Wednesday and said he was ready for negotiations with opposition leaders. The deal collapsed almost immediately, and security personnel and protesters engaged in running battles throughout the day Thursday.

Snipers shot into crowds, and firebombs came flying back. At least 70 people were killed, bringing the weekly death toll to at least 101, according to the Associated Press.

In response, European officials moved to sanction Ukrainian leaders. After an emergency meeting in Brussels, EU foreign ministers said that they would freeze the assets and revoke the visas of officials they consider responsible for the violence.The United States issued a similar visa ban on Wednesday.

The Russian government also pressured Yanukovych to restore stability, suggesting that it could withhold the next $2 billion installment of financial assistance. Prime Minister Dmitry Medvedev said Russia would "try to fulfill all our promises" to Ukraine, but that it could only deal with "legitimate and effective authorities - a leadership which people aren't wiping their feet on like a doormat," according to Reuters. Russia had agreed in December to give the Ukrainian government $15 billion to replenish state coffers. The Russian deal also included a 33 percent discount on natural gas imports, which Ukraine depends on.

European officials turned toward sanctions after months of trying to cobble together a competing financial deal for Ukraine. U.S. Treasury Secretary Jack Lew reminded Ukrainian leaders Wednesday that they could still get a deal from the West in exchange for "steps to fix their economy."

While Kiev is still burning, it seems unlikely that Ukrainian officials would sit down with a bunch of bureaucrats at the IMF to talk about economic reforms. But if Yanukovych steps down or agrees to share power with opposition leaders, a new interim government could reopen those negotiations. That, in turn, could clear the way for Kiev to receive desperately needed funds.

"Ukraine is eminently salvageable," said Douglas A. Rediker, a visiting fellow at the Peterson Institute and a former IMF executive board member. "The economic issues that were confronting Ukraine were important, but not existential."

The Ukrainian government was facing a slew of economic issues that stemmed from the fundamental problem of spending more money than it was taking in. While the domestic economy sputtered, the government continued to increase wages, raise pensions and subsidize the country's energy costs.

Yanukovych didn't want to make any changes to that system for fear of weakening his grip on the country. Wealthy businessmen and people close to Yanukovych have grown wealthy, even as the rest of the economy slipped into recession.

"There's a reason that Yanukovych's son, a dentist by training, is now one of the most successful businessmen in Ukraine," said Steven Pifer, a former ambassador to Ukraine and a senior fellow at the Brookings Institution.

The Ukrainian government also sunk a lot of money into hosting the European soccer championships in 2012. Ukraine spent $14 billion to get ready to host the games with Poland, according to a Bloomberg report at the time.

But perhaps Ukraine's biggest problem was paying a high price for imported natural gas and then selling it to consumers and businesses at a lower price.

The IMF criticized these energy subsidies in a December report that outlined a whole raft of changes that it wanted Ukraine to make. The government had agreed to many of them on paper when it accepted a $15 billion loan in 2010. In December, the IMF reiterated the need for those changes, including reducing the government deficit, reforming energy markets, and better regulating the banking sector.

The IMF said Ukraine's high gas subsidies, which were 7.5 percent of GDP in 2012, led to "one of the highest energy consumption levels in Europe." The subsidy scheme led to a government deficit and losses at state-owned energy company Naftogaz, which was late on payments for gas imported from Russia.

Natural gas imports have often figured in disputes between Russia and Ukraine for years, with Russia periodically shutting off the spigot. Still, that didn't stop Yanukovych from turning to Moscow when faced with what he considered onerous loan terms from the West.

Former IMF Chief Economist Simon Johnson said Ukrainian leaders were faced with a decision about whether to change the direction of the economy.

"Do you have a relatively few people get a lot of power and economic opportunities or do you have rule of law and a broader economy?" said Johnson, who is now a professor at the MIT Sloan School of Business.

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The Comfort Women Lobby

How tensions between South Korea and Japan are playing out in small towns across America.   

The bill was supposed to be a straightforward affair -- an easy way for lawmakers from a heavily Korean part of Virginia to please their constituents. After months of lobbying, a handful of northern Virginia legislators proposed a bill stating that the 377,600-square-mile body of water located between the Korean Peninsula and Japan would be known in Virginia textbooks by two names. Not just the Sea of Japan, as it is commonly known and as the Japanese prefer, but also the East Sea -- the name used by Koreans. But as word of the proposal trickled out, lawmaking at the Virginia Capitol began to take an unfamiliar turn.

By mid-January, reporters from newspapers with names like the Sankei Shimbun and the Hankyoreh began showing up in Richmond, a small southern capital of just over 200,000. Women turned up to lobby legislators in colorful Korean hanbok. And Japan pushed back, hiring a team from the prominent lobbying firm McGuireWoods to help persuade lawmakers. Weeks before his Jan. 11 inauguration, Governor-elect Terry McAuliffe received a letter from Japanese Ambassador Kenichiro Sasae that looked an awful lot like a warning: "I worry Japanese affinity toward Virginia could be hampered," Sasae wrote, according to the Washington Post. Sasae would pay a visit in person later that month; not to be outdone, South Korea sent down its own ambassador, Ahn Ho-young, in late January to make its case. (The South Korean Embassy didn't respond to requests for comment; Ohtaka Masato, the spokesman for the Japanese Embassy said there was a "false impression" that Japan had lobbied hard against the bill.)

The quirky spectacle of Virginia's state legislature debating matters of East Asian international relations proved too much for journalists around the world to ignore. But it also marked one of the most successful efforts in a quiet series of ongoing attempts by Korean-Americans around the country to take longstanding historical disputes with Japan to places where they can win them. Not Washington or the United Nations, but to communities in northern Virginia, California, and New York, where Koreans have enough political clout to counter Japanese objections. "We cannot influence the foreign policy of the State Department, we cannot influence the" International Hydrographic Organization (IHO) which gives official designations to bodies of water, said Peter Y. Kim, a northern Virginia businessman who helped lead the textbook fight. "But locally, I have a right to raise my voice."

In early February, the General Assembly became the first U.S. state legislature to pass a bill mandating that the state's textbooks refer to what the rest of the country knows as the Sea of Japan by both its standard name and the East Sea (the bill still awaits McAuliffe's signature). In doing so, it has weighed in on a long-standing dispute between the two countries. South Korea argues that the name "Sea of Japan" was established while it was still under Japanese colonial occupation, between 1910 and 1945; Japan says that "Sea of Japan" has long gained international acceptance, and predates the colonial period.

Little by little, activists are litigating some of the most contentious issues in Korea-Japan relations on small corners of American soil. Last year, the Korean citizens of Glendale, a southern California city of less than 200,000, waged a campaign on behalf of a statue dedicated to so-called comfort women in the city's central park. The statue, identical to one outside the Japanese Embassy in Seoul, is a monument to the young women, often Korean, who were abducted to serve as sex slaves for Japanese troops during World War II.

What started as a gesture by the city council to Korean-American residents, who make up 5 percent of Glendale's population, sparked a furious backlash from Japanese and Japanese-Americans, who flooded council members with letters claiming that the issue was overblown, and that many of the women were willing prostitutes. In October, the city's mayor said in a letter to a Japanese counterpart that he regretted the move. Other council members stood firm, but the furor was enough to scuttle a similar statue in the nearby city of Buena Park. In 2011 Korean-Americans championed a similar plaque commemorating comfort women in the small New Jersey town of Palisades Park, population 20,000; it, too, set off Japanese ire.

The Virginia state legislature is not the only place where Korea and Japan have fought a proxy battle over the Sea of Japan vs. East Sea question. Last August, Anne Arundel County, a Washington D.C. suburb in Maryland with a population of 550,000, became the first U.S. county to jump into fray, agreeing to teach its students both names in response to lobbying by the Virginia-based advocacy group Voice of Korean Americans. Nearby Montgomery County joined Anne Arundel a few months later. Fresh off the success of the Virginia legislation, two New York state legislators introduced in early February a bill that would require that state's textbooks to also use both "Sea of Japan" and "East Sea." In mid-February, New Jersey lawmakers went even further, with a bill that would require the use of "East Sea for all governmental purposes."  

Koreans and Korean-Americans lobby locally in part because their country cannot outmatch Japan at the national or international level. Japan's population of more than 127 million is more than 2.5 times that of South Korea's, and its economy is more than five times larger. Trade between the United States and South Korea in 2013 added up to a little over $100 billion; trade in goods between the United States and Japan, the world's third largest economy, was double that. And while the Japanese-American population is only 1.3 million, there aren't enough Korean-Americans to make any significant voting bloc at the federal level: The total Korean population in the United States is just under 2 million. "Especially spread across 50 states, persuading Congress members with so few constituents is really hard," said Chejin Park, who worked on a successful effort in 2007 to secure a House resolution asking Tokyo to apologize for enslaving the comfort women, and the Palisades Park memorial. "It's much more effective working on the municipal level."

Many Korean-Americans are recent immigrants, who have stronger feelings about questions of history than many of the Japanese-Americans who've been in the United States for generations. In pockets of the country where Korean-Americans make up a sizable portion of the population, the East Sea and comfort women issues are rallying cries. Virginia's estimated 82,000 Korean-Americans turned out in force to lobby on the East Sea bill, for instance -- compensating, perhaps, for a South Korean government that isn't as active on these questions as some overseas Koreans might hope, Kim said. "The Korean government -- it's not that they are not doing the job, they're trying," he said. "But when nothing's happening there, we have to do the lifting."

Japan, for its part, seems compelled to respond with big guns to even small  provocations. In his letter to McAuliffe, Sasae reminded him of Japan's economic weight as the state's second-largest foreign investor. But Glendale, too, received the personal attentions of three members of Japan's parliament, who visited Southern California in person to argue for the removal of the comfort women statue. Tiny Palisades Park saw not one, but two delegations from different areas of the Japanese government, one of which reportedly offered a donation of cherry trees and books for the town library if the town agreed to take down its memorial. Palisades Park, which is more than 50 percent Korean-American, sent the delegates packing. Ohtaka said the offer was likely "an expression of courtesy." Tokyo is just "explaining our understanding of the situation when it's necessary," he said. "We don't actively do it -- only when it's necessary."

Even Anne Arundel County received a visit from the Japanese Embassy asking the school system to stop teaching students both the East Sea and the Sea of Japan, said Anne Arundel County Public Schools spokesman Robert Mosier. The conversation was "very cordial," Mosier said, but the envoy did "express that the Japanese government had some consternation about this issue."

Kim says he has no illusions that little changes at the state and local level will add up to any large-scale changes in, say, the policy of the United States: Japan is too important of an ally, South Korea too dependent on U.S. support in its ongoing standoff against North Korea, he says. Virginia children will now learn about the East Sea. For now, he says, that's enough.