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Fall overview of Ukraine’s ruined economy

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Fall overview of Ukraine's ruined economy

Original by Aleksandr Rodzhers published by news-front.info; translated from Russian by J.Hawk

People are constantly trying to convince me of two things:

a) West will naturally come to help and keep the Poroshenko-Yatsenyuk regime afloat;

b) Ukraine’s economy is not doing nearly as badly as I claim.

As to the first question, I have a question of my own to which so far nobody has given an answer: what has kept the US from giving Ukraine money on September 23 and prevent a technical default? Especially since some like to claim that “they could simply print as many dollars as they need”?

First of all, one shouldn’t perceive “the West” as some sort of a monolith operating in unison to fulfill some sort of a plan. Plans may well exist, but the Western coalition is suffering from many internal contradictions and conflicts affecting states, financial and industrial conglomerates, corporations, and parties. Thus, for example, the Republicans are always making life difficult for Obama simply because he is a Democrat. Or the financial lobbyists are pitting themselves against military-industrial complex lobbyists. To say nothing of the conflicts between US, French, and German interests.

Secondly, US Treasury Department announced that the US national debt limit will be reached yet again on November 3, sooner than expected. Because expenditures turned out to be higher and tax collections lower than planned. And since it’s about the elections (in the US it’s always about the elections), the Republicans will more likely than not once again blackmail the White House by threatening to refuse to raise the debt ceiling. That’s yet another hemorrhoid for  the Obama administration which usually forces it to make concessions.

And to add to that hemorrhoid several billion dollars for some Ukraine, with no guarantee that the money will be returned (nobody hopes for that anymore, in any event) or even not stolen before advancing US national interests in some way? Particularly when the US has several such “ukraines” all over the world and can’t plug every gap with its dollars.

Thirdly, let me repeat myself and say that if Washington had the ability and thought it might help to give Kiev money, it would have given them. But reality is not cooperating with my opponents when, as Karl Marx used to say, “practice is the measure of truth.”

And now let’s shift to the other assertion my opponents make by examining facts and numbers to see just how well the post-Maidan remnants of Ukraine are doing.

1. The most basic parameter used to evaluate an economy is the Gross Domestic Product, or GDP. Prior to the Maidan it was $170 billion per year, while this year it will be in the range of $80-85 billion (though my calculations suggest it will be no greater than $75-76 billion, but OK). A drop of 50% in two years. A catastrophe of magnitude that’s not comparable to anything in most recent history. Maybe with the exception of the consequences of the Iran-Iraq war unleashed by Saddam Hussein. But even then the collapse took seven years, whereas Ukraine broke all records.

2. Foreign debt. It used to be $58 billion plus the $3 billion that Russia gave, in other words $61 billion (Yatsenyuk is, as usual, lying about the $74 billion–just look at financial analyses from 2013). Now it’s $70.5 billion, or an increase of $9.5 billion. Plus, as of June 30 2015 Ukraine’s state and state-guaranteed debt was $68.3 billion, but already on August 31 it was $70.56 billion. In grew by 3.24% (or $2.2 billion) in only two months. Is that shrinking debt looks like?

3. Gold and currency reserves. As of late 2013, in spite of the raging Euromaidan, the reserves stood at $20.4 billion. Now people speak of $12.6 billion. Thus the gold and currency reserves dropped by $7.8 billion in two years.

4. Drop in exports. Exports to Russia decreased by 65% due to Yatsenyuk cabinet’s russophobic actions (and it’s continue to decrease thanks to the idiotic anti-Russian “sanctions”), exports to EU shrank by between 35% and 60%, depending on the country. That’s in spite of the Association Agreement and promises given to Ukraine that the agreement would open EU markets to its products (in actuality, these markets were to a large closed by export quotas on nearly all types of products).

5. The condition of the banking sector. In the last six months, about 60 banks closed (by bankruptcy or leaving the Ukrainian market), and 40 more plan to close next year. No surprise here. Hard currency individual deposits shrank by 37% in 2014 and an additional 22% this year (which is not yet over). Hryvnya deposits during the same time period dropped by 30% in spite of the three-fold devaluation. Which means that the actual value of deposits decreased by 70%. And that’s with strict restrictions on early withdrawals, especially of hard currency deposits!

As Gontareva herself said last year, “if the deposits drop by 30%, the banking system can’t survive.” At least she didn’t lie about that.

Banks simply have no money to perform their daily operations, no base for the multiplier effect, and almost none meet the 10% reserve requirement. They can’t maintain all of their branches which caused over 20 thousand bank employees to be laid off. Supporting Euromaidans proved to be both costly and painful.

6. Unemployment. The number of unemployed increased by 2.5 million in one year (though official statistics give a number only half as large). Which means there are more poor, the purchasing power is lower, economic activity, tax revenues, and pension fund contributions are likewise all lower.

7. The most important exports lost their profitability. Ukraine imported more chemicals this year than it exported (if I am not mistaken, it’s the first time it happened since Ukraine’s “independence”). Steel prices decreased from $530 per ton to $150 before creeping back to $220.

Where are the drivers of growth which might lead to an economic revival? IT? All of the IT firms are fleeing Ukraine en masse to countries with a more IT-friendly climate, such as Poland, Belarus, and Russia.

8. Now please keep in mind that nobody wants to give Ukraine new credits in spite of their record-high interest rates (Ukrainian eurobonds currently have an interest rate of 46-48%), since these are hopeless investments which will never be recouped.

9. Kiev already declared a municipal default, provincial cities tend to be in an even worse shape but their leaders are afraid to let this be known out of fear of repressions.

10. Business is being squeezed dry by taxes on non-existent profits and by the government not refunding the VAT. The regime already owes the business community 48 billion hryvnia.

11. If the hryvnia-dollar exchange rate is being maintained, it will inevitably fall after the elections (in other words, in less than two weeks). Most of Kiev economists acknowledge this.

12. All the while Yatsenyuk and Yaresko are lying about debt restructurization. Who would do business with hardcore liars like these? Who in their right mind would do it? Such public lies are capable of repelling even those who were in favor of restructuring and will never attract those who refuse to restructure (and that’s the majority of the creditors).

So now tell me about how good life is in Ukraine and how “the abroad will help them.” But be sure to back up your theories with numbers and facts as I have done. Because I’m a bit too old to enjoy fantasy fiction.


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