Vultures circle Ukraine as economy collapses

The formation of an acceptable new government in Ukraine reflecting the multi-dimensional aspirations of the popular uprising that saw off the Yanukovych kleptocracy is proving difficult enough. Dealing with its collapsing economy is an even bigger problem.  

Ukraine’s economy is relatively small – at around $7,000, its annual gross domestic product for each of its 45 million people is around one fifth of the UK’s – but the country’s potential is being sized up by external forces.

All the actors on the global political and economic stage – including the International Monetary Fund, the European Union, Russia, China and not least the global corporations are eying up the prospects for collapse. They are weighing the advantages that can be gained from an intervention and studying the likely impact on themselves.  

In the 20 years or so following the break up of the Soviet Union, most of the former state industries were “privatised”, or rather handed over to oligarchs, including Yanukovych’s family members.  After years of their self-enrichment, and recent economic decline intensified by the effects of the global crash, the country is now dangerously close to bankrupt.

World prices for steel, Ukraine’s biggest export, have fallen by half since the Chinese economy began to slow in 2011. At the same time the country’s cash balance has been declining and its external debt – including overdue payments due to the IMF and Russia’s Gazprom - soaring.

As is well-known, due to its geographical location Ukraine plays host to a network of pipelines that carry gas and oil from Russia, and a number of the other former Soviet states to Western  Europe. But the global oil corporations are eager for action.

Shell and Chevron signed agreements last year to drill unexplored shale formations in Ukraine, offering the chance to upgrade the country’s energy infrastructure and boost domestic production, thus reducing the amount of gas imported from Russia. Before the crisis erupted last year, Exxon, the largest US oil company, was also close to signing a pact to explore the Black Sea.

The country is the fourth largest of the world’s arms exporters, and has become increasingly dependent on sales to China’s rapid build-up of military equipment. Last year, Ukraine agreed to lease 5% of its extremely fertile, but relatively undeveloped land to China to grow crops and raise pigs for sale to Chinese state-owned companies. As part of that deal China promised to build highways and bridges in the country.

A new report from the Institute of International Finance sets the immediate context. It says that budget financing “has become virtually unavailable”. The acting president, it noted, says that Ukraine’s pension fund does not have enough money to meet pension obligations. The report warns:

“On the other hand, tax revenues appear to have collapsed along with economic activity during the weeks of the political standoff. With no access to foreign markets, and domestic banks under intense liquidity pressure, the central bank has become the sole financier of the government.”

Estimates of Ukraine’s’ need for emergency funding vary from $12- $30 billion this year. On the world scale these are relatively small sums – the bailout for Greece amounts to 237 billion euros - and small change in relation to the trillions pumped into the financial system in the wake of the 2007-8 crash.

Some have even suggested that the emerging Ukrainian government should approach former citizen Jan Koum for help. He has just sold his instant mobile messaging application WhatsApp to Facebook for $19bn. More seriously, the IMF will only lend to a stable government, one that is prepared to impose a severe programme of austerity on its restive population.

That is certain to lead to further social upheaval. Ukraine’s struggle for political and economic self-determination has only just begun.

Gerry Gold

Economics editor

Ukrainians die for themselves, not East or West

The portrayal of the uprising against Ukraine’s government in Kiev and other cites as simply an East-West tug-of-war is a superficial viewpoint that insults those slaughtered by snipers on the streets of the country’s capital yesterday. Ukrainians are actually dying to remove a corrupt regime that represents only the oligarchs.

Neither should anyone be fooled by the crocodile tears shed by the White House and the EU for the dead of Kiev. Safe to say that if protests against governments in any of these capitals reach the fever pitch shown in Kiev, troops and armed para-militaries would quickly be on the streets and a state of emergency declared.

While it is true that far right forces around Svoboda are prominent in the fighting, there is no clear, unifying agenda in Maidan Square. People of all classes have rallied to an anti-government movement but without a perspective of what happens next. This is characteristic of global uprisings that began with the Arab Spring and that have spread to many countries since, taking different forms each time.

In Ukraine, opposition political parties, who play with populism just as much as Victor Yanukovych’s Party of the Regions, do not control the crowds that have taken the square. The direct action Common Cause group has seized many buildings and is for the dissolution of the state while the fascists draw their support from disenchanted workers in western cities and the middle-class in Kiev.

But as one observer put it: “Yet they do not go there [Maidan Square] for the West or against the East. They go for themselves and against the regime that victimises them… not in the name of a political system or even a particular politician, but for the rule of law and open borders.” 

The fact that the fighting has spread to the mainly-Russian speaking city of Kharkiv in the east adds substance to this point. "The price of freedom is too high. But Ukrainians are paying it," Viktor Danilyuk, a 30-year-old protester, said in Kiev yesterday. "We have no choice. The government isn't hearing us.”

They may not seem revolutionary enough for some people but these demands, as modest as they appear, are sufficient to produce a violent confrontation with a government and state that cannot rule for Ukrainians as a whole. Where that leads depends on other factors, including the crucial question of leadership and organisations that can transcend nationalism and the rule of the oligarchs.

Ukrainian oligarchs control large parts of the country's economy and are prominent in the ruling Party of the Regions, and control over 80 MPs. Orysia Lutsevych, researcher for the Chatham House think tank, notes: “In Ukraine, the fusion of business and politics is more the rule than the exception. Holding high legislative and executive office provides access to a patronage system, protection for business, access to public finance, and immunity from prosecution."

The businesses of Ukraine's richest man, Rinat Akhmetov, the main financial backer of the regime, obtained 31% of all state tenders in January 2014. The president’s son Oleksandr tops even this, having "won" 50% of state contracts in the same period. Father and son have stashed away vast sums of wealth in Western Europe.

Ukraine’s economy has been badly affected by the global crisis, particularly since the middle of 2012. Borrowing heavily both from Russia and the International Monetary Fund has left the Yanukovych government caught in the middle. Russia wants Ukraine drawn into a customs union of its own while the European Union sees 50 million potential new consumers.

Either way, the prospect for Ukraine’s workers is lower living standards either within an authoritarian, Russian sphere whose capitalist economy is badly affected by falling oil prices and an EU dominated by austerity and mass unemployment. Not so much an East-West tug-of-war as an East-West nightmare. Other, revolutionary solutions that rise above borders, beckon.

Paul Feldman

Communications editor