Download Ukrainian Transitional Experience

Ukrainian Transitional Experience
Matthew Buening
1
Background Facts
• Independence Day is
August 24,1991
• Slightly smaller than
Texas
– 2nd largest in Europe
• Capital is Kiev
2
Early History
• Kievan Rus was once the greatest country in
Europe
• Mongol Invasion in 13th Century
• Part of Polish-Lithuanian Commonwealth
– Imposition of serfdom, Suppression of the
Orthodox Church
• Russian Betrayal
3
Modern History
• Partitions of Poland in 1772, 1793, 1795
– West split between Russia and Austria
• Following the fall of imperial Russia, Ukraine
experienced a short lived independence
– Ended by Polish-Soviet War
• Following World War II, the country was united
under Soviet rule
• Famous People- Nikita Khrushchev, Leonid
Brezhnev
4
East and West
• East
–
–
–
–
Favors ties with Russia
More Urban and Industrial ex: Sumy and Poltava
Better transportation
Closer to large industrial centers
• West
– Favors ties with the West
– More agricultural
– Higher rates of poverty
5
Ukrainian Government
• Parliamentary Democracy
• President and Prime Minister
• 450 seat parliament- Rada
6
Socialistic Tendencies
• Skeptics say it is socialism with a few
market elements
• Decisions on allocation of resources
decentralized
• Socialistic aspects
• Soft budget constraints
• Enterprises maximize production and employment
instead of profits
• Goods are sold by barter in late 90’s
7
Promising Economy
• Rich farm land
– 57% of the country is arable
•
•
•
•
Well developed industrial base
Highly trained labor
Good educational system
Rich in natural resources
8
9
Economic Trends Since
Independence
Year
Inflation Rate
Change in GDP
1990
16%
1991
96%
-9%
1992
1713%
-17%
1993
3380%
-13%
10
Inflation
• Decline in taxable income
– No need for military goods
• Funds to large inefficient companies
• The government began printing money to stay one
step ahead of public expectation
• Changes
– Limiting the aid given to state owned companies
– Suspension of salaries of state employees
11
Introduction of the Hryvnia
• Introduced in 1996
• Cut 5 zeros off of the karbovanet
• Brought in money from the shadow
economy
• Resulted in public panic
– Government ordered a freezing of prices
12
Privatization: Independence – 1999
• 1991-1994
– Little real privatization
• 1995-1999
– Every citizen received vouchers to be exchanged for
shares in a company
– 100-500 companies privatized a month
– Companies generally small to medium size firms
– Ex: Obolon
13
Privatization: 1999-Present
• Dominated by sale of large companies
– Ex: Donbasenergo
• Slow process due to government apathy and
litigations
– Ex: Rivne Azot
• Marked by corruption
– Ex: Kryvorizhstal
• Hurt Foreign Direct Investment
14
Foreign Direct Investment (FDI)
• Low in the region
– In 2004 Ukraine had $7 Billion
Poland had $50 Billion
• Passed few laws to encourage FDI
• Orange revolution gives hope
• Only way to boost FDI is to continue selling
large state enterprises
– Ex: Ukrtelecom, Resell of Kryvorizhstal
15
Trade
• Chief Exports
– Steel, Energy, Chemical, Agricultural Products
• Metallurgical market
– 2003 Growth
– 2005 slump
• Exports: Europe- 39% Asia- 25%
CIS countries- 25% Other- 11%
• Imports: CIS counties- 50% Europe- 32%
Other- 18%
16
Trade Continued
• Common Economic Area with Russia,
Belarus, Kazakhstan
• Problems with Russian oil dependency
– Putin blocks delivery of crude oil
– Ukrainian response
17
Ukrainian Oil Situation
18
GDP comparison
19
Pre- 1999 GDP
• Low GDP due to
– 1)complex laws and regulation of businesses
– 2)Weak enforcement of contract law
– 3)Low bank lending
• By 1999 barter operations had surpassed
50%
20
GDP: 1999-2004
• Jump started by then Prime Minister Viktor
Yushchenko
• Economic growth due to
– 1)Simplified taxation
– 2)Increase in privatization and development
– 3)Rising world prices in metal
• Bank lending increasing 50% per year during
period
• Industrial sector increase has greatly helped GDP
growth
21
Post Elections
• January 2005- Viktor Yushchenko became
President
• Conflict between President and Prime Minister
• Economic policy has been derailed since
Yushchenko became President
• March 2006- Constitutional changes gives power
from the President to the Prime Minister
22
Closing Question
• This month the country will hold
parliamentary elections
• How will the outcome affect the country’s
transition
23