SKOPJE, Macedonia, Jan. 7 (UPI) -- (This is part one of a 2-part analysis of the surprising Ukraine economy. Part two will appear Tuesday, Jan. 8.)
Reading the Western media, one would think that Ukraine's main products are grotesquely corrupt politicians, gray hued, drab and polluted cities, and mysteriously deceased investigative journalists. Another one was found dead in Odessa on New Year's Eve.
Both the Prosecutor General and the Ukrainian Parliamentary Committee for Fighting Organized Crime and Corruption have accused the entire Ukrainian Cabinet of Ministers of collusion in shady dealings with Kazakhoil, the Kazakh national oil monopoly. The December 2001 Legsi (the Lehman Brothers Eurasia Group Stability Index) warned against a deterioration in Ukraine's social stability, owing to fiercely resisted austerity measures.
Things are not auspicious on the international front either. During the recent Balkan hostilities, Ukraine supplied Macedonia with attack helicopters and other weaponry over the strident objections of the State Department. Its strategy of an ever-closer union with Russia and China was in ruins following the sudden shift in Putin's geopolitical predilections after the Sept. 11 attacks. And to spite the EU (which forced Poland to impose strict controls on its porous border with Ukraine) -- "starting from Jan.1 2002, Kyrgyz citizens, like the citizens of Azerbaijan, Armenia, Kazakhstan, Tajikistan and Uzbekistan, may enter, leave and pass through Ukraine without visas" as the Kiev-based UNIAN news agency jubilantly announced on Jan. 4.
Its parliament having failed to pass a government-sponsored law against the unlicensed production of CD ROM's -- the Ukraine was subjected on Jan. 2 to U.S.-imposed trade sanctions (estimated to cost it $500 million per year). The employees of Ukraine's largest CD maker, Rostock Records, demonstrated opposite the U.S. embassy against the sanctions, denouncing them as "economic terrorism". The International Federation of Phonographic Industry countered by saying that "Ukraine is the largest exporter of pirated CDs to Europe, with tens of millions of high quality illegal copies shipped each year to markets throughout Europe and as far away as South America." At any rate, anti-American sentiments are running higher than usual.
Ukrainian discontent is further exacerbated by the American threat to slap tariffs on steel imports despite a last minute agreement signed last year with the EU and other major steel manufacturing countries to curb worldwide production. Ukraine has agreed to cut its output by 11 million tons annually (out of a total world production reduction of 97.5 million tons). Depressed prices for gallium (a by-product of alumina production used mainly in the recession-struck mobile phones industry) have gravely affected Ukraine's only alumina producer (Mykolaevsky Hlynozyomny Zavod), which has just quintupled its gallium production capacity to 10 tons.
Ukraine is optimally located between Central Europe and Russia. It is the largest polity in East Europe and the second largest country is Europe (almost the size of Texas). It is rich in natural endowments, though hopelessly polluted (Chernobyl is in the Ukraine) and deforested.
In the former USSR, it provided 25 percent of all agricultural produce. The Soviet mining and oil industries relied on Ukrainian heavy industry for their equipment. The literacy rate in Ukraine is 100 percent and many Ukrainians are polyglot.
Yet, these Ukrainian riches were squandered in the decade following independence. Dependence on energy and a reform effort thwarted by entrenched Communist era stalwarts led to a 60 percent drop in Gross Domestic Product compared to 1991 (the year of Ukraine's independence). Frenetic money printing resulted in hyperinflation in 1993. Inflation has still not been subdued and has topped 26 percent as late as 2000. More than 50 percent of the population is under the official, starvation level, poverty line.
Though only 5.3 percent are registered as unemployed, both underemployment and hidden unemployment are rampant. Mercurial and default prone Russia is still Ukraine's main trade partner (about 30 percent of its international trade). Each of Ukraine's 49 million citizens owes $200 to foreign creditors -- the equivalent of 30 percent of GDP per capita.
Public debt has doubled to 50 percent of GDP in the four years to 2000. Worse still, Ukraine is increasingly used as a drug smuggling route and drugs growing area for the CIS. Synthetic drugs are manufactured in Ukraine and smuggled to the countries of Western Europe.
Ukraine is a major target for Russian investors, especially from the energy sector. Putin appointed Victor Chernomyrdin, a political heavyweight -- a former prime minister and, more importantly, a former chairman of Gazprom, the Russian energy behemoth -- as Russia's ambassador in Kiev. Ukrainians are not against Russian investment -- but they are averse to the political strings that come attached to it. They also resent the bargain basement prices at which their most valued assets are "privatized" to these old-new "foreign" investors.
Inevitably, they ask themselves "cui bono" -- who benefits personally from these questionable transactions. The answer is not too hard to guess -- but guessing has proven to be a dangerous occupation. At least one muckraking journalist has been (literally) beheaded and a senior politician jailed for trying to reform the energy sector.