Poverty is clearly worsening
The president of Ukraine says that the authorities have managed to reduce poverty in Ukraine. He has reported a continuous reduction of poverty rate, a 25 percent increase of minimum wage and 10 percent increase of actual salary level).
However, according to sociologists, the level of poor people – those who do not have enough money for food – has increased from 12.5 percent in early 2008 to 13.8 percent as of October 2011.
The number of people who can afford only food and essential items has increased from 34 percent to 41 percent.
Experts suggest that poverty in Ukraine affects women more than men, with 62 perent of the poorest Ukrainians being women. About 50 percent of poverty-struck people and 29 percent of poor people are senior citizens.
The conclusion is that the majority still lives below the poverty line no matter what the government says. Such an economic and social situation which is only getting worse, hardly contributes to the establishment of democratic principles and values in Ukraine.
People First Comment: According to official data the minimum wage in Ukraine today for a state employee in is $120 per month. To put this into perspective a litre of petrol costs around $1.40. Officially inflation is currently running at 12% per annum but this does not take into account the substantial grey and black economies where the rate is reported as being appreciably higher. Therefore the recent 25% increase in the minimum salary level is barely keeping pace with inflation let alone improving living standards. In any other industrialised country wage rates of this level would be considered almost slave labor. You only have to go into any supermarket in Kyiv to understand that food prices today are higher than prices in London where the minimum wage is equal to $1,740 per month.
The Ukrainian ability to withstand hardship is legendary however this government is cynically reliant on this national trait whilst they waste valuable national resources on frivolities. Sharkira cost the nation over a million dollars for a 45 minute performance at the re-opening of the national stadium. The Presidential administration are currently engaged in cutting a 1.5 kilometer long security tunnel through solid rock and big enough to take limousines from the new three-storey presidential helicopter landing pad to beneath the president’s office… and at the same time the thirst for luxury cars continues unabated particularly amongst parliamentary deputies.
This blatant and cynical disregard for the welfare of population should be a cause for real concern particularly when added to repressive taxation, state sponsored corruption, restrictions of freedom of assembly and speech and lack of any form of job and social security. If the government do not take steps to control these unnecessary expenditures and channel more money to where it is most needed then they and only they will be responsible for the consequences.
Ukrainian government is running out of money
Experts, journalists and some opposition politicians claim that the government of Ukraine has been having considerable financial difficulties towards the end of 2011. Negative factors and tendencies have been piling up, jeopardising the implementation of the state budget, increasing debts and putting the government into dependence on creditors. The overall state budget deficit as of December 2011 is expected to reach Hr 15.2 billion ($1.9 billion). It threatens to empty the treasury account and violate financial obligations to the tune of Hr 10.5 billion ($1.3 billion).
According to the Ministry of Finance, the country will have to pay Hr 22.36 billion ($2.8 billion) towards its repayment of international debts. Arseniy Yastenyuk, leader of the ‘Front Zmin’ political party, has reported that there are only Hr 2 billion, or $250 million, in the government’s treasury account and only $3 billion foreign exchange in reserve.
The situation is further complicated by the fact that state banks can no longer credit ‘Naftogas Ukraine’ so that it can pay ‘Gazprom’ for the gas. It has become obvious as ‘Gazprombank’ Russian bank has now credited the Ukrainian oil and gas monopolist. The government of Ukraine has also received Russian credits charged against future transit revenues. As of October 2011 ‘Naftogas Ukrainy’ received Hr 45.6 billion ($5.7 billion) in loans. Delays in the payment of pension benefits as well as the increasing "popularity" of unpaid holidays among employees of state enterprises are also indicative of the government’s financial problems. Various benefits and social payments have been cut to the maximum extent. Nevertheless the draft of next year’s budget indicates that the government is refusing to pass the main financial burden onto big business leaving it instead on the shoulders of regular people.
People First Comment: In some ways we ought to feel sorry for Prime Minister Mykola Azarov in that his current financial problems are not exactly of his making. Sure, the plundering of the budget by members of his party has not helped but this is a disaster that has been waiting to happen for the past 10 years after successive governments believed that they could borrow their way out of debt. Government bond sales were a great way of raising cash quickly especially as it was highly likely that the government who organised the bond sale would be out of office by at least three or four governments before the bonds matured.
Unfortunately for Prime Minister Azarov it is about now that the first long term bonds have to be repaid. What previous governments have done in such circumstances is issue new bonds to cover the old but unfortunately the financial markets have turned bearish and are no longer willing to support questionable regimes even at ridiculous yields. Italy is currently being asked to pay 7% interest on long term bonds, up from 2.5% two months ago and this has cost their Prime Minister his job, the same is true for Greece and if opposition experts are to be believed then Ukraine is in a worse state than both.
Azarov is also trapped by his own economic background in that his policy seems to be inspired by Soviet thinking. He, just like his predecessors in the Soviet Union is reliant on the export sales of raw materials, which may be fine in a growing world market but with the world on the verge of a second and deeper recession he has nothing to fall back on. Western economies have diversified their risk between exports and the power of the internal market but Azarov in his thirst for tax revenues has totally decimated the domestic market and eradicated a sizable part of the SME sector that is so vital to survival. Unfortunately for Ukraine his successors will have almost the same problems.
IMF turns its back on Ukraine
A mission of the International Monetary Fund (IMF) came on a working visit to Ukraine on Oct. 25 and stayed until Nov. 3. The mission left early citing a pause for technical investigation. The Ukrainian media however believe that the government of Ukraine showed zero inclination to negotiate with the fund. In July 2010 Ukraine entered into cooperation with the IMF under a stand-by program of $16 billion in value. Up to now Ukraine has received from IMF only two tranches, of $1.25 and $1 billion. Since then, the allocation of the other eight tranches has been repeatedly postponed. According to experts the IMF stopped crediting Ukraine because it does not have enough money. Ukraine is already the second largest debtor to the IMF with the debt of $14 billion.
Max Alier, resident representative of the IMF in Ukraine, noted that the fund is prepared to invest its resources only in those countries which prove to be determined to continue implementing reforms. The most long-awaited reforms are the pension reform already signed by President Viktor Yanukovych and a growth of gas charges for the population, which the government has refused to do, along with the reduction of state financial deficit. Recently Azarov announced that the government will proceed with cooperation with the IMF after they finish gas negotiations with Russia. The government believes that two tranches can be united so that they receive $3 billion at once). The IMF, however, has made it clear that Ukraine will not receive any money if there are no real economic reforms.
People First Comment: It is almost inconceivable to believe that the prime minister was too busy to meet with the nation’s bankers of last resort on their recent visit to Ukraine. One can only hypothesize as to the reason but with $14 billion outstanding this slip of diplomacy could prove very expensive indeed. It is never a good idea to cold shoulder your bank manager when you are negotiating a new loan
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Whilst the excuse given by his press office was that the prime minister was waiting for a conclusion of the negotiations with Russia over a new gas contract, we can only surmise that perhaps he was also too embarrassed to admit that none of the agreed reforms have been put in place. Without the reforms the IMF will not release any further funds to Ukraine despite the desperate shortage of cash. The IMF have demanded that both pensions and domestic gas prices be bought into financial reality both of which are being resisted by the government as they are considered to be political suicide in the current environment. However this may not be true as Party of Regions ratings and those of the President are already at rock bottom therefore in real terms this is probably the best possible time to introduce such unpopular measures
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If the government are successful in closing the door to IMF funding then they have two choices, firstly to not pay the salaries of all state employees just before New Year… or secondly to borrow yet more money from Russia. This is Russian roulette with six bullets instead of one
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Putin’s Eurasian Union is becoming all too real for Ukraine
The government of Ukraine appears to be drifting towards a union with Russia. Some of the government’s actions seem to be moving the country towards the Eurasian Union announced by Russian Prime-Minister Putin. Konovalyuk, a deputy from the Party of Regions, has announced his intention to set up a group of deputies within the parliament in support of Ukraine becoming a member of the Eurasian economic union. The group will focus on Ukraine joining the Union). Verkhovna Rada has received an agreement on the Free Trade Area with the CIS, which it is supposed to ratify despite the agreement excluding the majority of products which Ukraine exports to the CIS countries. President Yanukovych recently met with Alexey Miller, CEO of ‘Gazprom’ which means that the authorities of Ukraine are making some progress in negotiations over the Russian Ukrainian gas agreements.
Russia still has an impact on Ukraine – mainly of a financial nature. With limited access to the world capital the government of Ukraine is falling into a position of dependence upon Russia – the new 550 million dollar loan ‘Gazprom’ has given to ‘Naftogaz’ brightly illustrates this(8). The fact that the government of Ukraine intends to extend the 2 billion dollar loan received from VTB Russian bank also illustrates Ukraine’s financial dependence. The last and biggest proof would be an agreement between Ukraine and Russia on the gas payments to perform all payments in Russian roubles. If the gas prices continue to grow, this sum is likely to account for $20 billion in 2012. In summary the governing authorities of Ukraine have demonstrated in practice their drift towards Russia and its integration projects.
People First Comment: Last week Dmitry Firtash, one of Ukraine’s richest business men announced to the Ukrainian media that he believed that the right direction for Ukraine is as part of the EU and not within a Moscow centric Eurasian Union. Normally such a comment would not raise an eyebrow but for one factor, Firtash is reported to have particularly strong ties to Moscow and he is one of the President’s inner sanctum.
Any capable and adroit businessman can easily recognise which of the two Unions is in their business interests. If the President’s inner clan are making such public statements on their preference it is difficult to ignore the possibility of a rift within the Presidential camp particularly as those most likely to benefit from closer ties with Europe are from Party of Regions.
In reality the only thing the European Union and the Eurasian Union have in common is that they share the same initials. All of the initial dancing with Europe was designed to achieve one thing, to enable Ukraine (read Oligarchs) to capitalise on the low labour rates and abundant raw materials Ukraine could offer to what is one of the world’s largest markets. What the current elite seem to have failed to understand is that concessions would have to be made, the main ones being an adherence to the rule of law and to the principles of good democratic practice. Sadly whilst the business minds within the elite may have seen this coming it would appear to have come as a complete shock to those of a more political persuasion. In reality it would be virtual suicide for Ukrainian oligarchs to side with the Eurasian Union simply because Russian power and Russian business will prevail and that is clearly not in their interests.
Viktor Tkachuk is chief executive officer of the People First Foundation, which seeks to strengthen Ukrainian democracy. The organization’s website is: www.peoplefirst.org.ua and the e-mail address is: [email protected]
