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The final days of the middle class in Ukraine

Ukrainian
sociologists claim that less than 5 percent of the population enjoys a quality
of life comparable with the average level of the European middle class.
According to their research, this social strata is made up of entrepreneurs and
top management of large companies exclusively. At the same time, only 1 percent
of the population can be considered rich.

Today
the remaining portion of the population spends most of their income on food (53
percent); it should be noted that inflation is increasing the price for food
without improving the quality. Besides food, families spend a lot of money on
education and medical care, despite the fact that these services are supposedly
free in Ukraine. Most Ukrainians are left with almost no funds for recreation
or cultural development.

Ukrainian
scientists illustrate that while in European societies the share of middle
class is on average 60-65 percent, in Ukraine the great stratification of the
population is deepening. It is believed that stable democratic development
requires at least 50 percent of a population to belong to the middle class. In
Ukraine, as in most post-Soviet countries, the majority of highly-qualified
specialists do not belong to middle class in terms of their income. At the same
time almost 17 percent of the population survives on less money than the
minimum subsistence level (about $130 per month). It is hard to hope for
positive democratic developments in Ukraine when the middle class – the basis
of democracy – is being watering down further and further.

People First Comment: There are a number of reasons why the Ukrainian
middle class is diminishing.  The first
is that anybody with any brains has already moved their wealth and their
families out to countries that are less hostile to the concept of middle class
wealth.  The second reason is the almost
wonton destruction of the small and medium sized business sector through
crippling taxation and the rapacious demands of the tax police.  Those in power really do seem to be under the
illusion that all wealth generated in this country belongs to the state… that
is apart from their wealth.

In most successful economies small business is the backbone of the nation
contributing the lion’s share of the tax revenue and also the majority of the
national growth however in Ukraine the regime see it more as a singular source
of taxation to prop up their failing economic policies.  Thus the middle class are simply voting with
their feet; after all, why should anybody who has worked hard and made enough
money to be comfortable risk losing it to the bandits who manipulate the tax
revenue service. The standard system here appears to be if you make any money
at all here they will tax you mercilessly to a point where there is no point
working hard.

It is a sad reality that it is simply better to leave Ukraine and move to
somewhere, anywhere, where the rule of law and justice have real meaning. Sadly,
Ukrainians today have more civil rights living, even illegally, in Europe or in
North America than they do living in Ukraine such is the current state of
Ukrainian society.

 

Yanukovych U-turns on Ukraine’s European future

In his address to the
Ukrainian people on the 21st anniversary of Ukraine’s independence (Aug.
24) President Viktor Yanukovych said that European integration must not come at
the cost of intrusion into the country’s internal affairs. In his words,
integration into the EU at the cost of losing independence, making economic and
territorial concessions, and having internal affairs intruded into is absolutely
unacceptable. At the same time Yanukovych stated that processes of integration
into Commonwealth of Independent States will not be left outside of Ukraine’s
attention; it is after all one of the largest market for Ukrainian exporters.

Right after reassuring
the Ukrainian people of his intention to protect state interests Yanukovych
left for his second meeting in six weeks with Russian President Vladimir Putin
in Sochi.

This meeting turned out
quite unexpectedly for journalists and experts, since no breakthrough
agreements between the two countries were reached. At the same time the
President of Ukraine stated that Ukraine aims to become an observer in the Shanghai Cooperation Organisation (SCO), to further develop
Eastern vectors of economic cooperation. These statements about reversing integration into
the EU at any cost and the simultaneous request to gain observer’s status in
the SCO suggest Yanukovych is re-orientating from European integration to
Eurasian, despite many months political rhetoric to the opposite.

            People First Comment: The problem with European integration for the regime
is that if they join the EU they will have to obey the rules, something in
Ukraine they seem singularly unable to do up until now.  Since coming to power they have bent the
Constitution, change the whole basis of democracy within the Verkhovna Rada,
written laws specifically to suit their purpose, rewritten the entire electoral
system and corrupted the judiciary to a point where many would rightly claim
that Ukraine no longer has a functioning legal system or a working democracy.
And the critics would be right.  In two years
the boys in blue have undone a fledgling democracy and in its place built a
neo-Soviet criminocracy.  So their penny
has finally dropped… joining the European family is not a good idea… Not a good
idea for whom? 

In joining the EU Ukraine would have to build a
functioning democratic system controlled by the will of the people and backed
by a function legislature.  Corruption
would be much more difficult as the EU has standardised systems of control and
functioning accounting systems that would make blatant theft so obvious that
even the blind would see.  Monopolies
would be illegal and take-overs would have to be legal as opposed to men in
masks backed up by the tax police… in fact Ukraine would have to build a truly
functioning democratic society in which the hospitals would work properly,
children would get a sound education, the small business would flourish,
salaries would rise and as would the standards of living.  This is not Utopia; this is the reality of
the European system, but this is not what the regime considers to be in the
national interest…

So now they turn toward China as if the Chinese are
going to allow them to play their games without any sort of penalty. As many
African nations have found to their cost, nothing that comes from China comes
for free. Everything has its price and perhaps the regime ought to take note
that in China the price of high level corruption, is your life.

Financial, currency risks growing

With the October
elections drawing near the experts and population hold a growing fear of a
significant devaluation for the national currency. Another destabilising factor
is that Ukrainian banks and importers are resorting more and more to
speculation: making money on currency reselling(5). Experts
underline the danger of the current tendencies in Ukraine’s economy and state
finances. Particularly, ex-Minister of Finance Viktor  Pynzenyk has said that the Ukrainian economy
has no stimulus towards growth. The reasons for this are the decreasing demand
for Ukrainian products on external markets and the absence of any serious
positive changes on the internal market that might stimulate investment and
domestic demand.

Another factor that is
worsening instability are measures implemented to stop currency bleed from
Ukraine, introduced by the National Bank of Ukraine. Meanwhile, import of
foreign currency is going through a process of deregulation, with the
requirement to prove where imported cash has been withdrawn from being removed
as of Aug. 31. Experts highlight that the policy is likely to attract large
quantities of questionably-sourced (black) cash which will be invested in
Ukraine’s high interest deposit accounts; interest rates currently reach up to
20 percent in hryvnia Not only will this increase the shadow sector of the
Ukrainian economy, but the risks of currency and financial speculations will
grow as well.

The population has
already increased the rates of currency buying (July saw growth of 26% compared
to June) and some banks have started limiting credit in UAH. At the same time
Prime Minister M. Azarov repeatedly states that the government together with
the National Bank will prevent the national currency from being devalued and
will not permit use of the “printing press”. Only 33% of Ukrainians believe
him, whilst 39% are certain that the national currency rates will fall
significantly, even before the end of the year(8).

People
First Comment:
When bank interest rates
rise above 20 percent you can bet your bottom dollar that the nation and its
entire banking system is in real trouble. 
Currently some banks are offering interest on deposits of 25 and 26%,
fine for the investor willing to take a punt but very risky indeed for the
average citizen looking for a safe haven for their life savings.  This is not the first time we have seen the
Ukrainian currency go more than a bit wobbly. 

How many of you can remember the karbovanets… Funny money designed by the
National Bank as an interim between the ruble and the hryvnia.  In fact, it was a very slick method of making
a few people very rich indeed.  You see they
borrowed money from the banks… which at that time happened to be the state in
dollars but repaid it in hryvnia at fixed interest rates.  By manipulating the exchange rates and
causing rampant inflation, their dollar loans were repaid at a fraction of the
real cost allowing them to pocket the difference.  They got very rich but any poor Ukrainian
with savings in Karbovanets saw them evaporate.

Successive regimes, rather than grow the economy, have been using the
national currency reserves for years to support the value of the hryvnia and
peg it to the US dollar.  A wise move you
might think until you realise that this is totally false accounting because the
national currency reserves are not infinite. 
Now the piggy bank is almost empty and try as they might the value of
the hryvnia is slowly falling.  It will
most likely slip gently before the October election but afterwards it could
easily go into freefall once again wiping out the savings of ordinary
people. 

How do you fight it?  Hold your
money in foreign currency at home in a very strong safe until Ukraine gets a
government that cares about your welfare and decent legislation to control the
banking system.

Informal giving is a positive surprise for Ukraine

Ukrainians, inspired by
the Italian tradition of caffè sospeso or coffee “in suspense,” whereby
people buying coffee anonymously pay for the next customers coffee. The
tradition is proving so effective that it is bleeding over into other spheres
of life. Specifically, well-to-do Kyiv residents are buying drugs in pharmacies
and leaving them for those in need. These drugs become drugs “in suspense” and
they are listed on a special board. Obviously only non-prescription drugs are
distributed in this way. Currently this movement is spreading in Kyiv, 6
pharmacies to date, whilst other Ukrainian cities are likely to follow. The
drugs are mostly consumed by impoverished senior citizens(9).

Ukrainians seem to enjoy
playing charity: the new movement quickly spread from cafés to pharmacies and
even to dry cleaners and yoga studios. This mechanism circumvents bureaucratic
barriers and the general distrust of big charity funds. These new charity
initiatives are being promoted heavily on social networks. Giving a present to
an unknown person by buying him or her medicine, coffee or services is simple
and pleasant act. So, Ukraine demonstrates new ways of building communication
bridges between people. It might come as a surprise, but Ukrainians are clearly
much better at generating social capital than they think of themselves(10).

 

People First
Comment:
Ukrainians are wonderfully
caring and charitable people only it’s a secret.  Herein lies a very powerful social conundrum
that if Ukrainians declare their wealth and use it for social good, they get
hammered by the tax police.  Rather than
donate to the lost cause of government taxation they go about their charity
quietly, without fuss or publicity.  To
the outside world it may appear that Ukrainians are heartless and uncaring but
exactly the opposite is true.  Children’s
homes get flooded with clothes, books, used computers, toys and worst of all
fluffy animals, this new phase of buying over the counter drugs for those least
able to afford them is just an extension of their inherent generosity. 

The sad part about it is that if the parliament were to pass sensible
charities legislation to enable real charities to operate freely then the cost
of State social support would drop appreciably. 
What many democratic societies have found is that if you allow the free
market to operate properly those that have acquired even a little wealth want
to share it with those who have nothing; it is simply a part of their humanity.  When people can choose which worthy cause to
support, all sorts of social good prevails in areas that governments really
have nothing to do with. Organisations such as the World Wide Fund for Nature,
Save the Children and Medicine Sans Frontier are entirely supported by private
and corporate charity.  In the UK the
lifeboat maritime rescue service is financed entirely by private donations
whilst in Ukraine what search and rescue services that do exist are part of the
military and run at government cost… assuming of course that they have the fuel
to fly helicopters and run rescue boats.

Charity is an integral part of any humane society.  The suppression of Ukrainian charity by this
government and frankly those that have preceded it, through their short-sightedness
and callous attitudes is just another example of how far behind the times and
out of touch Ukrainian leaders really are.

Victor Tkachuk is chief executive officer of the Kyiv-based People
First Foundation (www.peoplefirst.org.ua), a former deputy secretary of
the National Security and Defense Council of Ukraine, adviser to three
Ukrainian presidents and a former parliament member, Tkachuk can be
reached via viktor.tkachuk@peoplefirst.org.ua.

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