Ukraine's leading English-language newspaper since 1995

To survive the tough times ahead, everyone will have to adjust including the government policy

Painful as it is, the economic crisis can make Ukraine’s economy healthier and can help plant its citizens more firmly in a market economy. But it will take better political leadership than has been on display since independence.

The easy credit of the last decade led to unsustainable growth and financial carelessness. Inflation soared and the nation’s trade deficit widened. Meanwhile, not enough was done to end the elite’s stranglehold on competition or secure a more diverse economy, ready for the global challenges ahead.

To survive the tough times, everyone will have to adjust. Kyiv needs to seize the International Monetary Fund’s offer of a $16.5 billion loan to adopt painful, but badly needed changes. Privatization should be completed, but honestly and openly. Agricultural land should be traded, but anti-monopoly protections strengthened, so that that the oligarchs cannot create cartels in land the way they do in other sectors of the economy.

Done correctly, Ukraine can become a world agricultural powerhouse. Done badly, the elite will speculate on land and Ukraine will become a nation of sharecroppers.

This economic crisis has shown the dangers of having an economy that relies on commodity exports and easy credit. The nation’s leaders face the choice of moving in the Kremlin direction of a state-run economy, or more firmly adhering to the Western market-oriented model. As imperfect as life is in the West, we hope the nation, for the sake of its own prosperity, chooses a well-regulated capitalist system.

If Ukraine’s massive bureaucratic state apparatus is trimmed down, the nation will be better off. If red tape and taxes are cut, rapid growth of small and medium businesses – the engines of most economies – can happen.

But the path will be painful as people lose their jobs. Official unemployment is expected to increase from 6.2 percent earlier this year to 7.7 percent by year’s end. Ukraine’s unregulated labor market allows employers to unceremoniously dump their workers. Job reductions should be undertaken with compassion. Employers and government should help mitigate the human toll, both out of fairness and to prevent social instability.

But politicians will have to adjust their populist rhetoric and wean the populace off the idea that the government can guarantee social benefits when the money is lacking. The government should focus on smart, long-term investments – improving energy efficiency and independence, for instance – that will pay off handsomely in the future.

A shakeout is inevitable as the speculative excesses come to an end in such sectors as housing and consumer lending. A recession is predicted to last through the first half of 2009. Nations and individuals who use hard times to advance long-term strategic goals can emerge stronger.