The Ukrainian economy in Putin's calculus

The upcoming “social autumn” is expected to be harder than ever. The Ukrainian economy, which has been crippled by the oligarchs, the permanent stagnation and the enforced external financial dependence, will probably face one of the most difficult periods. The new authority has already prepared the answers on all the difficult socio-political questions, that will be probably asked by the Ukrainian society. The recipe is painfully ordinary: “Just add Putin!”.

The Secretary of the National Security and Defense Andrey Parubay the day before his retirement declared that in September-October a new wave of destabilization attempts from the side of Russia is expected to hit eight regions of Ukraine. He is sure “They (RF representatives ) think that the unpopular reforms, which the government will be forced to apply, will lead to social tension and increase of dissent. Also they believe that after this increase, the new ground for destabilization will be set.

Encouraging enough for the Ukrainian leadership, which doesn't have to worry too much about finding an external “enemy”. No wonder why Parubay spoke now about the situation in autumn , as the preconditions for a social explosion (not only in the eight regions mentioned) are more than needed. There are two main factors that will play the key role in the complication of the situation: the disfunction of the national economy and the increase of the social burden on population.

The economical disfunction is explained by the precipitant paralysis of the industrial production, which took place with the dynamic reduction of trade turnover between Ukraine and Russia and the military actions in Donbass. It's worth saying that the eastern conflict itself (either with it's completion or even more with it's continuation), is actually a separate factor of the aggravation in the economical expression, of which the full scale is too soon to speak. With the reduction of the production dynamics , Ukrainian budget is left without serious funds. Only in the period from January to May, the budget got 12,2 billion UAH less. It was possible to avoid the social collapse “right now” through the transfer in the treasury of 22 billion UAH from the funds of the National Bank, which t balance, as we know, was successfully supplemented by an IMF credit.

The National Bank resources enabled 17 billion UAH to be directed to the external dept financing, the dynamic of which increased in more than a third , in comparison to the last year. But the most important, which is remarkable, is that the transfer of resources to the budget, allowed to mend the tattered social programs. As a result, the aggravation of the social crisis and even more the high probability of default, are now completely dependent on the international creditors.

Such dependence intensifies the second component of the coming social apocalypses – increase of social burden on the wide population layers. This is the direct consequence of the IMF crediting terms. It is already possible to summarize the first social “sacrifices” at the request of the Fund. The indexation of wages and social allowances frozen and not adjustable in relation to the inflation dynamics. Hryvnia “successfully” left to floating, on demand of the “flexible exchange rate”. The tariffs for public utilities substantially increased, of which the significant impact will be especially felt in autumn and winter.

It is worth saying something more about the increasing tariffs. This is exactly one of the most important factors that will lead to the deterioration in the citizens welfare on the background of the “freezing” social standards and the further government inability in paying the compensation allowances (to which ,by the way, IMF is strongly recommending to “take a closer look”). From May the gas tariffs are increased to 60%, while had been unchanged from 2010. In the future, the gas price for the population is planned to be increased to 40 % in 2015 and to 20% in 2016 and 2017. By calculating the relation of the growth in gas price, we should take into account the significant increase in the heating price (which will fully express itself in the beginning of the heating season). From July the price of water was increased too. For example, in Kiev tariffs were increased more than twice, in Rovno 1,7 times and in Lutsk to 80%.

And this is only what is done already. In perspective IMF “recommends” : reduction of more than 400 thousand employees of budgetary institutions, increased load on teachers. In the Fund they believe that the growth of wages in the education sphere in the last years, did not respond to the reduced school-age population. In addition, we have “freezing” of the educational sphere wages until 2016 , reduction in the number of hospitals, increase of the retirement age for men to 65 years, cutting in the payments to the working pensioners, and much more. 

Brilliant economic solutions from the new authorities are not expected and the only that is left, is to rely on the good will of the international community and creditors. The belief of the Ukrainian leadership that the “unpopular reforms” and the rain of the credit resources will enable us to live , with clenched teeth, until the longed stabilization, is seemed to be very naive. Although, for the Ukrainian government playing rules are now very simple : “Obey or lose”.

In the present situation there is not left space at all for maneuvers or independent economic decisions. The only tool that is available to Ukraine is the coordination and the transformation of the social aggression flow on an external enemy, who prevent us from happily “live anew”.

Roman Gubrienko

Source: Liva 

(Translated by Tetiana Viktorivna)