Seminarreihe des Arbeitsbereichs Ökonomie am IOS
Zeit: Dienstag, 13.30–15.00 Uhr
Ort: Leibniz-Institut für Ost-und Südosteuropaforschung (IOS); vorerst online via Zoom, Link wird mit den Einladungen verschickt!
Forschungslabor: „Geschichte und Sozialanthropologie Südost‐ und Osteuropas“
Zeit: Donnerstag, 14–16 Uhr (Lehrstuhl) oder 16–18 Uhr (Graduiertenschule und Leibniz-WissenschaftsCampus)
Ort: WiOS, Landshuter Str. 4 (Raum 017)
Ekaterina Sprenger, OEI
Ukraine has suffered more from the global economic and financial crisis than average Eastern Europe. For the open highly internationally integrated country the declining foreign demand had strong negative effects on real GDP, production and employment. The dependence on exports did not only lead to production losses but also meant a loss in foreign currency earnings which in turn affected the exchange rate. The reduction of export has also increased the deficit of the current account, which was already high prior to the crisis. A further reduction in external sources of economic growth came through foreign direct investment (FDI) outflows, signifying a loss of trust among the investors. The growth rate of real GDP has dropped to -15.1 % in 2009. It was not until the beginning of 2010 that the GDP forecasts became somewhat more optimistic. Ukraine experienced immense losses in industrial output. Its industrial production bottomed at the beginning of 2009 showing an average of about 30 % below the level of 2008. Industrial production started to grow again in the second quarter of the year raising the year's average to -20 %. In terms of Consumer Price Index (CPI), another double digit change, over 15 % on average, has occurred during the course of 2008 and 2009.
The above mentioned facts do not only point out how severe the crisis hit Ukraine, but also do they emphasise the lack of a reasonably coordinated programme against the crisis. Considering the economic situation prior to crisis is thus both inevitable and desirable for a better understanding of Ukraine's current economic challenges, yet it is not the explaining factor. Ukraine's economy is closely interrelated with country's politics. Major macroeconomic indicators reflect Ukraine's political turbulence. In terms of Ukraine's politics, the past ten years have seen a continuous power struggle and instability. Particularly the period following the Orange Revolution saw a sharp decline in real GDP growth from 12.1 % in 2004 to 2.7 % in 2005. Growth of industrial production and growth of consumer price index show similar development. According to the EBRD transition indicators, some improvement in trade and foreign exchange market (Forex) system came along with Yushchenko's presidency, moving from 3.33 points in 2004 to 3.67 and 4.33 points in 2005 and 2008, respectively. Banking reform and interest rate liberalisation also gained points advancing from 2.33 in 2004 to 3.00 in 2006. General business environment, however, remained inadequate. Ukraine's Ease of Doing Business rank was 146 and 142 out of 183 countries in 2009 and 2010, respectively. The main task of the new presidency is therefore not only to overcome the economic crisis, but also to reconstruct the economy and the institutions.
One of the gravest factors of Ukraine's economic decline over the period of the global financial crisis was a dramatic decline in FDI. Net FDI inflow has almost halved in 2009 compared to the previous year - in 2008 it amounted to US$ 9.7 billion and in 2009, to US$ 4.7 billion. Moreover, due to Ukraine's excessive borrowing, its economy has become particularly dependent on the global actors. Ukraine's gross external debt has exceeded US$ 100 billion in the second half of 2008 and in April, it comprised some US$ 102.834 billion.
Co-operation with the International Monetary Fund (IMF) has been playing a crucial role in the process of Ukraine's economic development since the country joined the IMF as a member on 3 September 1992.
In November 2008, the IMF approved a US$ 16.4 billion loan to Ukraine. The programme aimed at stabilising macroeconomic and financial performance. The payments were frozen in November 2009 when Ukrainian parliament decided on raising minimum wages and pensions contrary to IMF recommendation. Financial co-operation between the IMF and Ukraine resumed on 28 July 2010 when a 29-month SDR 10 billion (roughly US$ 15.1 billion) Stand-By Arrangement was approved by the Executive Board of the IMF. The loan is intended to further support the economic stabilisation and implementation of the programme of economic reforms.
Restored cooperation with the IMF also improves Ukraine's chances for better cooperation with the EU. EU-Ukraine relations have been developing somewhat slower than desirable, even though gaining a potential candidate status has been on Ukraine's policy agenda since 1991.
The Partnership and Co-operation Agreement (PCA) signed in June 1994 by Ukraine and the EU laid the legal foundation stone for the political and economic co-operation between the parties. The PCA did not enter into force until March 1998. This first steps in bilateral relations were followed by a cool period characterised by EU's dissatisfaction with Ukraine's poor economic and political reforms. The year 2004 was a turning point in relations with the EU as Ukraine neared the enlarged EU in terms of geography. The possibility of the Orange Revolution eventually bringing about Ukraine's democratic governance and thus narrowing the gap in terms of politics seemed to be not entirely irrational. Both events gave a new impetus to the partnership. Ukraine was granted market economy status, became a priority partner country within European Neighbourhood Policy (ENP), and signed a Framework Agreement allowing the European Investment Bank (EIB) to lend to projects in Ukraine. In September 2008, EU's willingness to achieve the main objective of the ENP to build security in its neighbourhood as well as Ukraine's enthusiasm for European integration resulted in negotiations on the Association Agreement. Ukraine's World Trade Organisation (WTO) membership as of May 2008 allowed for negotiations on the establishment of a Deep and Comprehensive Free Trade Area (DCFTA).
In terms of Russo-Ukrainian relations, on the other hand, the period of Yushchenko's presidency following the Orange Revolution has seen very little positive development. The political tension peaked in January 2006 when Gazprom cut off gas supplies to Ukraine. In general, Russo-Ukrainian political relations from 2005 onwards seem to be well reflected in the parties' relationship in the gas sphere. The political relationship between the countries became so tense, eventual improvement caused by Yushchenko's departure was inevitable. The new government under Viktor Yanukovych is determined to improve the relations with Russia, which is also discerned in a not least symbolic agreement signed in April 2010 providing for 30 % discount on the price of imported gas to Ukraine. Russia profits from the agreement by extending the lease of the naval base at Sevastopol. By improving the political relations the countries once again politicised their economic relations.
As it became clear on 7 February 2010, the Ukrainian electorate was disenchanted with the Orange Revolution. In the second round of elections, Yulia Tymoshenko, who served as the head of government from December 2007, lost the run-off for the presidency against the opposition leader Viktor Yanukovych with 45.47 % and 48.95 % of the vote, respectively. Former president and the leader of the Orange movement Viktor Yushchenko was eliminated already in the first round winning the support of mere 5.45 % , which corresponded to the fifth place. Rather disturbing is the fact that the proportion of votes "against all" has almost doubled compared to all three attempts at the presidential election in 2004. In 2010 second round, 4.36 % of the voters went to the polling station to give their voice to neither candidate.
Disappointment in politics and politicians is deep. The often heard statement among the Ukrainian voters that old politicians better stay in duty because they have already received their part of the cake, while new politicians will take away new parts and population will still be worse off, has nothing to do with democracy and voter control underlying economic modelling of politicians' behaviour.
A history of disappointing national politicians began with Leonid Kravchuk. His reforms were to have long-term effects and to aim at political and economic transformation and nation building. The very first president of the country did not have an easy initial position. It was virtually impossible to achieve pluralist party system directly after one party dictatorship. Neither Ukrainian voters nor Ukrainian government had had any experience of democracy, and yet, precisely democratisation was anticipated during Kravchuk's government. Kravchuk's most unsuccessful misson was a transition from a planned economy to a free market economy. The first years of Ukraine's independence were marked by hyperinflation, decline of industrial production and the very slow pace of privatisation, rather than by transformation.
In Ukraine's second presidential elections, Leonid Kuchma, who served as prime minister from 13 October 1992 to September 1993, won the runoff against Kravchuk. Kuchma's economic reform plans proved to be more convincing than those of the former president, and in October 1994, the first IMF programme is approved - Ukraine's first drawing, SDR 249.3 million, under the Systemic Transformation Facility (STF). In April 1995, Ukraine concluded the second IMF agreement to support the 1995 economic reform programme (see Press Release No. 95/19). In 1996, Ukraine implemented a new constitution and finally adopted the national currency, hryvnia, which substituted kupony, the transitory currence introduced in 1992. By 1995, a certain degree of stabilisation has been reached, tardy basic market economic reforms have been introduced, and subsequently the reforms seem to have run out of steam. The social sector remained untouched. Familiar Ukrainian façade democracy remained under Kuchma's presidential administration, however, introducing new elements such as controlled media.
A short state of euphoria after the Orange Revolution was followed by chaos in politics and policies. The leadership of the Orange Revolution were falling apart in arguments leaving little energy for efficient policy-making. Some vital outcomes of the Orange era are democratisation, freedom of speech as well as better relations with the EU. Cosmetic improvements have been made in terms of institutional design. Indicators such as Corruption Perception Index and Aggregate Governance Indicators show, however, that the period following the Revolution was not all improvement in terms of government effectiveness, regulatory quality, and control of corruption. Other areas essential for economic development remained nearly untouched. Transition indicators show that the country's infrastructure underwent nearly no change since 2000.