Earlier this week, the World Bank adjusted its already grim predictions for Ukraine’s economic prospects sharply downward. The Chicago Tribune:
The bank had previously expected Ukraine’s gross domestic product would contract by 5 percent this year and then grow 2.5 percent next year. It now expects the economy to contract by 1 percent in 2015.“Disruption in economic activity in the east has resulted in a sharper GDP decline. We project that GDP will be an 8 percent decline in 2014,” Qimiao Fan, the World Bank’s chief representative for Ukraine, told reporters.
Though Ukraine struggled to rebuild momentum after the 2008 global financial crisis, the economy is really grinding to a halt now (h/t Sober Look). The war in the east is doing its share to contribute to the slowdown. Industrial production is sharply down, a fact that should not be too surprising given how much heavy industry is located in precisely those areas convulsed by violence.
But it’s not just industry. Retail sales are sharply off this year as well—coinciding largely with the start of the Maidan.
Finally, Ukraine’s currency, the hryvnia, has been rickety since Ukraine’s central bank let the currency float in February of this year.
The truth is Ukraine’s economic situation has never been particularly sunny. If you take a longer view, Ukraine has failed to realize any significant economic growth ever since it achieved independence. The post-financial crisis drop in output in 2009 brought the country back to its 1992-era levels of wealth. When compared to Poland—a comparably wealthy post-Communist country in 1992—Ukraine’s failures become even more apparent.
As Anders Aslund explains in a must-read analysis over at The Journal of Democracy, it all comes down to one word: corruption.
Since the mid-1990s, Ukraine has lived under the domination of a score of oligarchs. These big businessmen control several sectors of the Ukrainian economy, notably energy, metallurgy, mining, and the chemical industry. The open and competitive sectors have mainly to do with retail trade, high technology, and agriculture plus its related industries. The big businessmen sponsor various political parties, including even the Communists and Socialists, but have no ideology and seek only narrow self-interest. Sometimes these business figures compete against one another and sometimes they collude; they are, above all, astute dealmakers.
And it’s a corruption that has proven impressively tenacious over the decades, with the heralded Orange Revolution of 2004 having had little effect. Even after the Maidan, Aslund writes elsewhere, “the new parliament in Ukraine remains a club of millionaires in a country where the per-capita GDP is less than $4,000.”This is the critical backdrop to the Ukraine story that often gets passed over by the daily papers as they cover the ups and downs on the battlefields of Donetsk. Ukraine’s desperate economic situation makes Vladimir Putin’s applied pressure over gas prices all the more acutely felt in Kiev. It also makes some kind of further bail-out by the West likely—the bulk of which would by necessity flow into Moscow’s coffers.It’s also the lens through which the upcoming parliamentary elections must be viewed. The country as a whole has not prospered since the fall of the Soviet Union, but a handful of ruthlessly pragmatic thieves have done very well for themselves. Will the Ukrainian people muster the will to clean the Augean Stables of their state amid war and looming economic catastrophe? Or will we be heading back to business as usual in Kiev?If the answer is going to be ‘business as usual’, there is not much anybody can do to help Ukraine. We hope Western diplomats and human rights activists are making this clear. If Ukraine can’t pull itself together, Putin is going to pull it apart.