Ukraine Bankrupt

By Walter Kish

For most of my life, one of the commonest phrases I heard my parents utter was “Bidna Ukrayina” or “Poor Ukraine”.  Of course they were primarily referring to her unfortunate fate of being politically and culturally oppressed for centuries by the Russians and the Poles, and more recently, by the evil of Communism.  Ukraine did gain her independence back in 1991, but in view of events over the past few years and especially the last few months, “Bidna Ukrayina” is more than applicable once again.  The difference now is that Ukraine is now literally poor in the economic sense, and but a short step away from bankruptcy.

The global recession has hit Ukraine particularly hard.  Industrial output fell by over 34% in the month of January, the largest decline in the country’s history.  The steel industry has seen its production more than halved in the past six months.  80% of the construction projects in the City of Kyiv have ground to a halt. Unemployment is increasing dramatically leading to large scale protests and demonstrations.  Ukraine’s currency, the Hryvnia, has lost almost half of its value dropping from about 5 to the US $ last September to around 8.5 in February.  Ukraine’s banking system is teetering towards collapse, and millions of Ukrainians have had their bank accounts frozen.  Inflation is running at around 22%.

To add to Ukraine’s woes, a new gas crisis is looming.  In January, Ukraine finally settled a bitter dispute with Russia over gas supplies with a new agreement that resulted in a doubling of the price Ukraine will pay for its gas supplies.  The problem is that Ukraine’s regional utilities are effectively broke and cannot afford to pay the new rates.  It is estimated that they owe Naftohaz, the national gas supplier who buys the Russian gas, some 4.5 billion Hryvnias, or close to $500 Million.  No doubt, we will shortly see a new gas crisis and potentially another shut off of gas supplies.

The economic crisis has been exacerbated by Ukraine’s poisoned political atmosphere.  President Yushchenko and Prime Minister Tymoshenko continue their bitter political fight, blaming each other for a lack of coherent policies and initiatives to deal with the country’s perilous financial state, all the while the Ukrainian economy goes up in flames.  The level of debate, if one can call it that, has sunk to new lows with each hurling insults and derogatory terms at each other that are bringing nothing but shame to Ukraine in the eyes of the world.

To make matters worse, Ukraine’s Minister of Finance, Viktor Penzenyk, resigned last week, partly over disagreement with the 2009 Budget and also not wanting to be part of the current political shenanigans.  He is widely respected both within Ukraine and abroad as one of the few politicians in Ukraine with a solid grasp of economic and financial matters.  His departure does not bode well for Ukraine’s economy.

The sad fact is that Ukraine’s government is running out of money.  They have only been able to survive thus far because the IMF granted Ukraine an emergency loan package last November in the amount of $16.4 Billion.  The government has almost run out of the initial $4.5 Billion allotment, and the IMF refuses further advances until the Ukrainian government undertakes strong budget cutting measures.  The state’s contentious budget for 2009 involves running a deficit of around 3%, something the IMF will not accept.  As it is, the 3% forecast has been overtaken by recent events, and experts are now forecasting a deficit of at least 7%, if not more.

Prime Minister Tymoshenko has been desperately approaching anybody and everybody for financial assistance, including the US, the EU, China, Japan and even Russia.  Times are tough everywhere though and her entreaties are falling on deaf ears.  The possibility of Ukraine defaulting on its national debt is growing by the day. 

These are indeed sad times for Ukraine – “Bidna Ukrayina!”