Analyst: Ukraine’s economy is dead

A beggar woman against the background of Saint Sophia’s Cathedral fresco paintings. Kiev, Ukraine, Eastern Europe. Photo Mstyslav Chernov.

Political analyst Aleksei Blyuminov is interviewed by Lug-Info:

[…] Lug-Info – In general, how do you assess the political situation in Ukraine?

– The political situation is absolutely unstable. There are no “fodder reserves” that could maintain stability. Roughly speaking, earlier, for example, under Yanukovych, this stability could be maintained by two things: the first – the legitimate state apparatus, and the second – the availability of some money. Now, both are missing. There are a lot of people who can toss grenades at the prosecutor’s office, and there is no money to cajole them.

Going back to the main problem – the regime is under external control, so all flames of instability are to be artificially extinguished. For example, there was a source of instability in the form Kolomoisky – he was removed after the mediation of the US Ambassador. There was a similar source of instability in the form of Nalyvaychenko: he was also removed. Therefore, external overseers are helping Poroshenko to keep the situation under control and consolidate his regime. Obviously, it cannot last forever, but as long as the Americans are interested in some kind of stability, they will not allow the spread of destabilizing tendencies.

Lug-Info – How important is the factor “of people returning from the front?”

– According to the association of owners of firearms (they are lobbying for legalization of the process), Ukraine is the largest supplier of illegal weapons to the EU. There have been some known attempts to smuggle multiple-launch rocket systems “Grad” across the country to Chernovtsi in order to sell them in Romania. We see that in all conflicts in Ukraine, including Mukachevo, heavy weapons are used. In Kiev, grenade explosions are heard and soon, in all probability, howitzers will be available. In spite of this, a more or less “glossy cover” of Ukraine is maintained yet.

Lug-Info – What about the situation in the Ukrainian economy?

– The economy is dead. According to the official data, the GDP has contracted by 12.5%. This demonstrates that the main branches of industry, which produced income: metallurgy, machine-building, chemistry, etc. – are in deep crisis. What more or less is still functioning to some degree is tied to the agricultural sector and exports through the port of Odessa. That is why, by the way, it is such a contested asset. Even lenders admit it.

Standard & Poor’s rating agency predicts that a default is inevitable. Not such a long time ago a technical default was admitted. But at the same time, due to political considerations, the same lenders say that they will continue to lend to Ukraine despite the fact that its economy is dead. Clearly, this is a purely political decision – to keep the bankrupt regime afloat. It cannot go on for a long time, but for some period they will be able to drag on.

Lug-Info – How will it look like?

– Without external credit borrowings Kiev is unable to form the budget for 2016. For this reason, Natalia Yaresko (Finance Minister) urges the Parliament to vote for all the conditions attached by the lenders as a package, blackmailing the deputies that otherwise default is inevitable. These conditions demand more severe cuts in all social programs, forcing the population to tighten their belts even more. Without this even the agreement about forgiving Ukraine 20% of its debt will not come into effect. But this debt write-off is not a victory. This means credit bondage, only delayed in time. Only the payment of the principal will be stretched for four years while the interest will be charged anyway. But this money will have to be returned by other people. Neither Yatsenyuk nor Yaresko will remain in their positions by then. However, it will be impossible to avoid a technical default. The government will have to impose a moratorium on debt payments in September and October. It is also necessary to return three billion dollars to Russia while Moscow made it clear that it is not going to forgive Ukraine’s debt.

Lug-Info – What is happening in the “social sphere”?

– In the social sphere there is a systematic reduction, squeezing, tightening of all social programs starting from the Chernobyl victims, pensioners, benefit recipients, and children of war. For example, in Kiev the categories of people who use public transportation for free have been significantly reduced. Only those people who have the so called “Kievite’s cards” have such a privilege. But this is a very small group. All other persons, including a huge number of migrants living in the capital of Ukraine illegally, do not have these preferential rights.

– And what about the prices?

– The prices are rising. On the one hand, the authorities caused the collapse of imports, on the other hand, exports crumbled as well. As a result, on paper the budget has reached equilibrium that is called deflation. In addition, without any sanctions and blockades, the assortment of goods in shops has been significantly reduced. For example, in the past there used to be 15 types of yogurt or mayonnaise, but now there are only three. What remains is the cheapest goods. There is no sense to sell expensive ones in mass retail stores. […]

Read in full Ukraine: Complete degeneration of the system at Fort Russ

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