Who is to be blamed for Ukraine's economic crisis? / News / News agency Inforos
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Who is to be blamed for Ukraine's economic crisis?

The EU demands that Ukraine turns into agrarian country

05.12.2018 17:57 Vladimir Blinkov, Special Mediametrics Studies Center

Who is to be blamed for Ukraine's economic crisis?

             Five years after the Maidan, Ukraine that had relatively high living standards has turned, as Ukrainian experts believe, into a country little suitable for living. It is the last but one in the list of European countries in terms of living standards, being ahead of just Moldova. What is reason behind such a drastic deterioration of the situation in Ukraine? To answer this question let's try to have a look at the "contribution" of Ukraine's policy and EU's and Russia's action to the current situation.

            "European integration" was declared a priority of Ukraine's economic policy in 2014. For its part, the EU made a number of steps to integrate Ukraine into the European economy. Ukraine was named one of the EU's priority partners in its Eastern Partnership policy. Ukraine and the EU signed the Association Agreement that covers energy, ecology and climate, transport, state finance and other spheres. The Deep and Comprehensive Free Trade Area (DCFTA) was introduced in Ukraine-EU relations on January 1, 2016 under the Association Agreement. Cooperation in the spheres of agriculture and development of rural areas, fishing and maritime policy, copyright, and the protection of consumer rights got deeper. Starting from 2014, the EU has allocated 3.3 billion euros to support reforms in Ukraine. Never before has the EU allocated such funds to a country that is not a part of the European bloc. The EU adopted a package of laws relaxing visa procedures between Ukraine and the Schengen zone, and now over 8 million Ukrainian migrant workers are employed in Europe, primarily in Poland.

            Noteworthy, the EU has become Ukraine's top foreign trade partner as a result of this large-scale program, but the balance of trade is negative for Ukraine. For example, Ukraine's exports to the EU stood at $14.612 billion, while imports totaled $16.869 billion. This means that the EU member countries, primarily Poland, are enjoying advantages of the Association Agreement.

            Resource-based products clearly dominate Ukraine's exports to the EU – food and agriculture products accounted to 41% and metal products of the first two processing stages accounted to 23.5% in the first nine months of 2018. It is hard for Ukrainian companies to get to the European market, as there are many conditions that require considerable costs. Those "willing" to work in the European market should make a serious investment into the creation of a representation office in the EU, which means forming a distribution network and hiring employees. So, each Ukrainian exporter is giving easy jobs and good salaries to Europeans at its own expense. As of today, slightly more than 700 Ukrainian companies pass multiple tests of "Brussels" inspectors and got the right to supply their products to the EU.

            Famous Norwegian economist Prof. Erik Reinert said in an interview with zn.ua that "the EU's current economic policy to Ukraine looks like a new "Morgenthau Plan." The EU in fact demands that Ukraine gives up its industry and turns into an agrarian country, which will make it even poorer in the end." "The Morgenthau Plan" is a program of Germany's post-war reform proposed by United States Secretary of the Treasury Henry Morgenthau in 1944. Germany later refused from the plan.

            The line of European integration has not yet brought prosperity not only to the Ukrainian people but also Ukrainian oligarchs, who got to the "grindstones" of deoligarchization. Large economic players capable of making internal strategic decisions are not welcomed in countries in the orbit of Europe's, just as the U.S.', influence. The major part of them lost this status and their assets got seriously cheaper. The only exception is "agrarian oligarchs" making up Petro Poroshenko's teams.

            As to relations with Russia, "the search for new spokes to be put in the wheel" of not only relations between our countries but also between Europe and Russia has become the center line in the policy of the Kyiv authorities. Ukraine refused to participate in the Customs (Eurasian) Union and denounced the Friendship, Cooperation and Partnership Agreement with Russia. The Kyiv authorities terminated 48 agreements and plan to terminate 40 more. Kyiv has always supported the West's anti-Russian sanctions. It stopped exporting military and dual-purpose goods to Russia. It cut transport communication with Russia and Russian natural gas supplies staring to buy "reversed" gas from the EU. Kyiv introduced moratorium on payments under a part of the loan provided to the Mykola Azarov government in December 2013. It introduced transport and energy blockade of Crimea and cut water supplies there and so on.

            In fact, Russia's economic policy just reacted to actions of the Ukrainian authorities. For example, Russia was forced to suspend the CIS Free-Trade Agreement in relation to Ukraine after the DCFTA took effect on January 1, 2016. Moscow banned imports of agriculture products, resources and food from Ukraine in response to "the Ukrainian sanctions."

            These actions of the Ukrainian leadership and Russia's countermeasures results in the fall of bilateral trade to $11.1 billion in 2017 compared to $38.2 billion in 2013. Ukrainian defense, metallurgic, chemical, and agriculture companies in fact lost the Russian market that was one of the main for them. This has already resulted in the bankruptcy of many companies.

            However, imports from Russia have been growing over the past years along with the drop of Ukrainian exports to Russia. Russia exported goods worth $7.2 billion in 2017, a 39.9% growth. The growth stood at $4.4 billion, another 25%, in seven months of 2018. The growth was sparked primarily by the export of coal, mineral products, fertilizers (their share grew from 2.6% to 9.7%), and partly engineering products recuperating the fall of their production in Ukraine. This "targeted" policy of the Ukrainian authorities also resulted in the growth of Ukraine's dependency on Russian energy. Despite that the Ukrainian authorities have continued to intimidate the Ukrainian people with "bad guys" from Russia, trade with Russia is till profitable for Ukrainian businessmen.

            This data shows that mainly the ruling Ukrainian elite that have failed to form any effective mechanism of stabilizing economic development that would not be dependent on political willfulness of its leaders is to be blamed for the current crisis. The Ukrainian leadership has got so much preoccupied with political games that it does not even want to help the economy work. This conclusion coincides with the opinion of many reputable Ukrainian experts who believe that if the Ukrainian authorities did not stage blockades and various political demarches and thought more about the economy rather than political slogans, production of diesel fuel and mineral fertilizers could be fine-tuned and normal conditions for ferrous metallurgy so that businessmen raised investments for reconstruction and for lowering energy costs were created.

            What the Ukrainian government tried to present as the policy of reform in fact was mending holes in the budget, creating monopolies and "greenhouse" conditions for "the friends" and tapping businessmen and the people of Ukraine for money. The Ukrainian authorities have managed to bring Ukraine to the bright European future only in terms of prices for gas, heating, and electricity. However, this result of European integration hinted some Ukrainian politicians that a social blast is possible in the country.

            Should Ukraine have lived majorly thanks to metallurgy, chemistry, agriculture, electric energy and mass low- and medium-technology of industrial production, many of these industries were actually killed. The most famous and largest Ukrainian companies in various spheres either have disappeared or are close to complete destruction (Yuzhmash, Antonov, Motor Sich and others).

            A vivid example of the "effectiveness" of the economic policy of the Ukrainian authorities is the mass outflow of people from Ukraine. The number of Ukrainians who left to work in the EU, Russia and the CIS is assessed at 14 million.

            The Ukrainian leadership views the further reduction of social expenditures as a way-out from the current situation, which would results in the further reduction of the population. However, political decisions aimed at solving this task look simple and well-elaborated in the EU for satellite countries – lowering the real subsistence level and increasing tax burden and tariffs for housing, gas, and public utilities services.

            And one more thing. In current economic conditions Kyiv is actively waving the stick of "a real" war with Russia. Mass mobilization and horrors that go hand in hand with large-scale hostilities can clearly be seen here. The Ukrainian leadership is preparing ground for the "storm" of refugees that can hit Europe. The recent "migrant crisis" in European countries will be just a school play. Will Poroshenko and his friends dare this "asymmetric" response?

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