More troubling news from the regime that we were so assured would bring all good things to Ukraine. So that’s 3 for 3: corruption, Socialism , bankruptcy.
Source link: http://archive.mises.org/3885/meanwhile-in-the-free-market-utopia-of-ukraine/
Meanwhile, in the free-market utopia of Ukraine
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Maybe someone was trying to assure you that the new regime would bring all good things to Ukraine; anyway, it was definitely not what was the Ukrainians had been told when they were casting their vote. Most of them had no excessive illusions about the new team – it was the prospects of having a proved criminal with an electoral base limited only to his native region being elected president that forced them to support Yushenko. And Yushenko never portraited himself a hard-line economic liberal, so the was no deceit as well. It is obvious that his goal was to see Ukraine as a European-style country.
Nevertheless, it is accepted everywhere that the new team is trying to put corruption at least under some control. Aslund simply distorts the picture when he’s trying to present the new course as something markedly different from what had been promised. Actually, he is known to present facts on various post-socialist countries mostly in line with his personal agenda and changing his views accordingly; my guess is that he was simply denied an interview with Timoshenko and it made him furious.
As for the growth – surely Aslund would not have expected Ukaraine to have 12-percent annual growth repeteadly year after year; for country like Ukraine double-digit growth must be but a transitional phenomenon reflecting low capacity utilization and extremely low wages.
As for inflation – the latest data show that half-year CPI was 6 % (for the comparable period in 2004 – 4 %), producer prices 8 % (14 % in 2004) – compare http://www.bank.gov.ua/Engl/Macro/pok_2004e.htm and http://www.bank.gov.ua/Engl/Macro/pok_2005e.htm – so Aslund’s statement about “skyrocketing inflation” is, to put it mildly, incorrect.
I can go on and demonstrate many others erroneous assertions made by Aslund if someone is interested but the point must be clear.
Nothing against Ralph, of course, but it should be pointed out that Mr. Yuschenko isn’t all bad. In fact, I think I see a tiny little bit of libertarian tendency in this article, which describes how he fired all the traffic cops in the country for being corrupt, and additionally talks about how he takes his vacations in his own car, rather than a motorcade. So maybe there’s hope yet!
Boris-you are probably right that Yushchenko never claimed to be a free market politician. However certain establishment figures (including certain DC libertarians) did claim that.
And from what I understand Yushchenko is just as based in a certain part of the country (the western and central ethnic Ukrainian) as Yanukovich is in the eatern and southern largely ethnic Russian part of the country. So the Yushchenko-Yanukovich is to a large extent a ethnic conflict as well as of course geo-political with Yanukovich being more friendly to Russia, but certain people falsely marketed this ethnic/geo-political conflict as a battle between freedom and tyranny.
As for growth, the newest figures are in fact even worse than what Aslund’s old figures showed, they show growth fell to a mere 1.1%. It is certainly possible to have near 10% growth for decades, as China and many other Asian countries have shown, so this was clearly at least partially a result of Yushchenko. That may to some extent be a transitional phenonema due to uncertainty, but if he continues on a socialist path it may not be so transitional.
Stefan – of course it is possible that some libertarians said that Yushenko was one of their kin; I have never heard of anything like that, and Raico does not refer to such claims. The conflict between Yushenko and Yanukovich is more complicated than what is usually presented in brief media descriptions. For instance, the capital – Kiev – is overwhelmingly Russian by population while also overwhelmingly supported Yushenko. Moreover, it is Yanukovich and Kuchma who made the lingering ethnic conflict a battle between freedom and tyranny by their own brasen attempt to steal elections.
As for the growth figures, we economists must be perfectly aware about the importance of lags and about complexity of economic factors (as well as about the vagueness of “macro” statistics, particularly monthly one). Of course, millions of people naively believe, for instance, that Bush is worse than Clinton because the stock market was rising under Clinton and crashed when Bush was elected, but we cannot entertain this simplistic excplanation. What exactly is going on in the economy of Ukraine cannot be understood from the latest monthly GDP data.
In any case, 19 % annual growth (to be exact – month-to-month) is definitely a short-term phenomenon. If you check the data, not media reports, you will be able to get a very basic glimpse of some trends. For instance, if yoy inspect data for Jun 2004 (http://www.ukrstat.gov.ua/operativ/operativ2004/mp/op/op_e/op062004_e.htm) you will see that 19 % growth (compared to June 2003) was driven mainly by construction growth (32 % over June 2003). On the other hand, in the first half of 2005 construction was slower and growth in this sector turned negative (see http://www.ukrstat.gov.ua/operativ/operativ2005/mp/op/op_e/op0605_e.html). What is clear that construction activity is strongly determined by prior decisions, made, say, a year or more ago. What exactly has led to slowdown of Ukrainian construction boom, we do not know yet. It could be that 2004 construction was at least partly financed by unsustainable sources, or there is some saturation of demand, or that situation was believed to be not much secure back in 2004 to initiate new projects, or it might be Yushenko’s fault as well. We simply do not know.
And, of course, 10 annual growth is all but impossible in Ukraine over the long run. China is too different – in terms of demographic structure, availability of basically free labor, absence of social safety net, and so on. 5-7 percent a year will be a very good outcome for Ukraine if they are able to maintain it over the ten-fifteen years.
The extremely high growth rate, experienced last year in Ukraine was due to three factors:
*High world metal prices – with 4% yoy physical output growth, export revenues of smelters increased by 50-75%. Ferrous metals is one of the largest sectors – the gountry is 7th world largest steel producer. Last year 79% of that particular production was exported, i.e. domestic consumption is very low. This year metals prices decreased, while input costs increased. This EXTERNAL shock led to closure of several smelters and drop in production.
*High budget deficit. Ukraine had highest deficit (4.4% of GDP) last year even despite higher than expected economy expansion (usually on peaks you get surpluses). Those money were channelled on increase of pension in order to buy votes. This led to a situation that minimal pension is close to average wage (above minimum wage) and thus the pension system cannot support itself after inflows of funds will end.
*Corruption schemes based on VAT fedeeming for exporters lead to artificially high exports (thus high net export and an artificial increase in overall GDP)
New Ukrainian government is far from perfection, but it hardly can be blamed for the slowdown.
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