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Ukrainian economy after a year of “reforms”: Banana republic without bananas

What is the key take-home point of this article?

It shows that, even if there was minimal resistance to the coup from Russians inside and outside Ukraine, turning Ukraine into a banana republic would inevitably bring economic ruin and collapse.

The same collapse that recently got the Pro-American, Pro-Kiev fugitive Georgian ex-president Saakashvili to declare “If we achieve 4% economic growth per year, it would take us 20 years to get to pre-Maidan levels”. 

The same collapse that is doing more damage to the Ukrainian nation than the smoldering war in Donbass.

As they say, a picture is worth a thousand words. So I posted both.
Pictures first – see for yourself how “good” Western reforms were for Ukraine… Bulgaria, Moldova, Georgia, Serbia, Libya, Syria, Iraq – how many countries does it take to realize the talk about “prosperity” is just empty promises?

Detailed stats (everything you need to know in one picture – courtesy of Yuri Lukashin):


When “foolproofing” fails: Banana republic without bananas
by Yuri Lukashin we all know, the so-called “evolution of dignity” put the Ukrainian economy in unprecedented state of depression and decay. On top of the destruction of a once-promising country, the stunning insistence with which Ukraine is committing suicide is simply surprising; if the current Ukraine goes down in history at all, it will most likely be as one of the most striking examples of mass delusion.By now, the mid-level organizers and foot soldiers of the coup are voicing surprise at the outcome. They’re saying: “Look, we took a course for radical westernization and we even accepted the role of Washington’s tool in attacking Moscow!”. And, in fact, Ukraine has been leaning that way for a quarter century, just not so rabidly. But despite such huge sacrifices, the standards of living and economic indicators go down to African levels – promises of democratic paradise proven false yet again (which could be easily predicted by anyone with an understanding of history and economics).

So, how can an average inmate of this giant insane asylum come to terms with what happened? How can one even wrap his mind around it all?


Let me explain:
In simple terms, 2014 Ukraine is a country where “foolproofing” measures have failed. Or, to be more precise, were overwhelmed by an invasion of aggressive, highly violent imbeciles – ones that, in normal countries, are kept away not only from politics, but from people in general.
For those who don’t know, “foolproofing measures” is a technical term for designing any complicated device or structure to try to prevent accidental or intentional sabotage (to protect both the device and the overly inquisitive fool).

This principle is nowadays used in pretty much all mechanisms around us – from a microwave to an airplane. So, if some fool suddenly decides to stick his hand in a running microwave, or jump out of a plane midflight, almost all modern devices are designed to make this extremely difficult.

All normal governments and complicated social structures (armies, secret services, corporations, churches, etc.) try to establish similar safety measures to protect themselves from internal idiots. Because an imbecile can, for example, be put in a position of power due to some unfortunate circumstance; then – regardless of his intentions, simply due to stupidity – he would do irreparable damage to huge numbers of innocent people.

However, what happens if idiots organize into a mob, united, for example, by some moronic notions of ethnic/ideological superiority, declare themselves the “elite of the nation”, and take over the government by force? And keep in mind their leaders would be subject to negative selection – the highest positions would be occupied by the most extreme and zealous idiots*.

As we can see, the country of Ukraine and its population were completely defenseless against such a scenario, so now we see the result.

<*Talking about negative selection, one cannot help but remember the example of Oleg Lyashko: a man with two fraud convictions who admitted to homosexual prostitution on video and interrogated naked “suspected separatists” without any legal justification, etc… Came in third in presidential election and has 5th largest party in Rada – ed. >


In the year since the great “revolution of dignity” Ukraine has been successfully moving towards building a specific type of economy, most similar to a “banana republic”. In fact, there is only one thing different between current Ukraine and its banana brethren in faraway Africa, Latin America, and Asia, and that is complete lack of bananas. Otherwise, a lot of characteristic features of “bananization”, including some specific changes in economic and political systems, have become very obvious.
By the way, the term “banana republic” has been invented by the writer O. Henry in “Cabbages and Kings”, and the one in the novel is very similar to what we see in the real world. The novel takes place in a fictional Latin American country named “Anchuria”, which mostly exists by exporting tropical fruit to the United States. The population lives in extreme poverty, while the elites regularly stage popular revolutions and palace coups against one another. However, no matter how many times the “corrupt regime” is replaced during yet another “revolution of dignity”, the people just keep getting poorer, and the government more corrupt. The government is, in fact, a puppet of an American megacorporation called “Vesuvius Fruit Company”, which runs the whole show.

Therefore, according to the original novel, a classic banana republic does not actually have real sovereignty, elections, mass media, politics – all of this is just a show for the natives, orchestrated by the greedy shareholders of the monstrous neocolonial corporations.

Why do banana republics exist? Why, in the real world, the majority of countries have been “bananized” to some extent, and a minority are “first world countries” – where the puppeteers are based and where the benefits of this system concentrate?

As they say, nothing personal – only business. Someone has to gather tropical fruit for pennies, right? Otherwise, the world will not have cheap tropical fruit. And someone has to run the controlling corporation…

The population of countries being “bananized” is therefore driven to plantations, telling them that if they work for pennies just a little bit longer and put their country under the control of Western corporations, they will all soon work in comfortable corporate offices, earning huge salaries and drinking coffee instead of gathering bananas under the scorching sun.

This can be called a “banana republic pyramid scheme”, and like any Ponzi scheme, it relies on large numbers of gullible fools. Rich countries make others into their colonies not because they are planning to feed them at their own expense, but because, to remain rich, they need cheap resources and labor from colonies**.
<An economic note to be made here:
Soviet “second-world” economy was often called inferior because Soviet citizens didn’t live quite as well as those in the first world…. but that is not exactly the right perspective.

Yes, Europerans&Americans had better cheaper goods, but they were only part of their system. A Frenchman had good cheap shoes, but the Asian men who grew the cows and cotton the shoes were made of, or the child laborers who made the shoes, often had no shoes at all. Outsourcing the underclass to the third world isn’t the same as prosperity.

By contrast, USSR provided everyone in the “food chain” with average-quality shoes.

USA lived better than USSR – but USA’s colonies in the region lived worse than USSR’s Cuban friends. Until USSR fell, anyway. -ed.>

Sadly, there’s usually no shortage of natives willing to exchange their fertile soil and natural resources for glass beads or pretty speeches about democracy. Such is the way of the world throughout known history and, unfortunately, for the foreseeable future.

Specific examples

Recently, in an interview with an American portal “Christian Science Monitor”, an advisor to the genius reformer Yatsenuk, one Alexander Kirsh, declared that the course for dismantling Ukrainian industry is completely intentional:

“A huge number of laborers in these dying factories is preventing Ukraine from moving towards Europe… Yes, this is going to be a painful change. But the alternative – keeping the industry, and staying friends with Russia – is much worse”.

And these are not empty threats, not at all. All the industrial complexes, as well as some key areas of infrastructure, have already closed or are on the verge of default and bankruptcy: Yuzhmash, Zaparozie car factory, Sumy factory complex, Antonov plane manufacturer, TurboAtom, Motor Sich, Kharkov Tractor plant, ElectroTyazhMash, etc. etc [huge companies, like GM or Boeing in the USA – ed.].

The metallurgical complex “MetInvest”, owned by Ahmetov, which unifies the leading metallurgical companies, declared default back in April. Recently, the country’s railroad monopolist “UkrZaliznytsya” has also declared technical default. A number of similar hugely important companies such as “Ukraine NefteGaz [Oil&Gas]”, “UkrAutoDor [Roads]”, “EnergoAtom” [Nuclear] are in the same situation, but for now they are being kept afloat with billions from state budget.

In fact, there are no large manufacturing companies in the Ukraine that have not either collapsed or on the verge of collapse.

A few numbers: In the year since the revolution, the purchases of new cars have decreased by 76%, and the production of cars and other vehicles has decreased by whole 93.5%!

Steel production, which previously gave over 30% of country’s hard currency income, has been reduced by over a third compared to the previous year.

Another indicator: the sales of gasoline at gas stations (without Crimea) have decreased by 40.7% (March 2015 compared to March 2014, according to Ukraine’s State Statistics Bureau). This is a great marker of the real economic situation, much better than the abstract GDP numbers.

Another example: in just a year, Ukraine lost almost a third of its banks (49 out of 180). Moreover, some of the ones that went bankrupt were “majors” (Delta Bank for example). Actually, the whole of Ukraine’s banking system is technically bankrupt, because those banks still afloat (even the “majors” such as Privatbank, OshadBank, UkrEximBank) are mostly staying solvent through huge hard currency injections from the government. There’s lots of talk about 15 more banks on the brink of bankruptcy; some of the “key” ones may be in there. It’s worth pointing out that the Bank Account Insurance Fund has run dry some time ago, so if another big bank collapses, all previous financial panics will pale in comparison.

And of course, the “domino effect” set in motion by the “revolutionary reforms” won’t only affect industry and banks, but will do ever-increasing damage everywhere. Whatever numbers Yatsenuk’s band of reformers makes up, Ukraine’s nominal GDP in dollars has fallen three-fold due to currency collapse. Simple arithmetic: nominal GDP 2013 – 1.566 trillion hryvna, so about $180 billion at the exchange rate of 8.1 h/d. 2014 GDP was 1.465 trillion hryvna, at the current exchange rate that’s about $62 billion. Last time the country saw such collapse was over two decades ago.

As a result of general economic collapse and systemic infrastructure problems, small business suffers hugely as well. It is estimated that at least a third of small companies have either closed or are about to. The trade sector is doing especially poorly, which is problematic because it employed several million people, and those people are the vulnerable part of the population – those that have been reduced to working as sales clerks by the previous quarter-century of “genius reforms”.

Another indicator is that over 30 international brands have closed down their distribution networks and completely left Ukraine. For example, Esprit (Germany), River Island (UK), OVS (Italy), New Look (UK), Minelli (France), Lee Cooper (UK), Mexx (Netherlands), IAM and SIX (Germany).

Over the last year, roughly a third of restaurants in the country have closed down.

Of course, apart from factory and customer service industry workers, there are also those that like to call themselves the “creative class”, also known as “glorified office workers”. [They don’t care much for the well-being of the industrial workers and those in the service industry, and expected European- level salaries and open border with the EU], so they were the main backers of the “revolution of dignity”. But, even if they keep their jobs in the next few months (which, considering the current tendencies, is uncertain), the sharp drop in real earnings will severely cut down on their purchases of fashionable clothes, new gadgets, and the free travel they so desperately wanted.

Everything is extremely simple: prices go up, purchasing power goes down. In a single year (April 2014 to April 2015) even the official inflation figure is at 60.9%, and the 37.4% inflation we’ve seen in the first four months of 2015 is the highest in 19 years.

For reference, inflation under Yanukovich’s “corrupt regime”: 2013 to 2014 – 1.2%, 2012 to 2013 – 0.5%, 2011 to 2012 – 3%.

The previous inflation record was set under another team of pro-Western “economic reform geniuses” (Timoshenko’s government), 2007 to 2008, when it hit 31.1%.

In fact, every time an “honest and modern reform government” replaces the “corrupt and incompetent old regime”, it immediately starts breaking off ties with Russia and snuggling up to US and EU. By some completely unrelated coincidence, this is always immediately followed by economic collapse, ballooning prices and reduced standard of living, which supposedly symbolize “progress” and “restored national dignity”.

Final indicator: the agricultural sector is apparently in big trouble as well. The average cost of planting 1 hectare of grain has nearly doubled over the last year, from 2.1 thousand hryvna to around 3.7. According to the first Deputy Minister of Agriculture Yaroslav Krasnopol’ski, this is due to increased prices of imports – seeds, fertilizers, fuel.

Increased production costs will certainly reach the consumer within months. The supposedly “high food prices” of today will be remembered with great fondness come fall. How would government employees and retirees survive this, when the “reformed” utility bills are severely limiting their food options even now – nobody knows.

And, as a finishing move, the “reform government” is now heading down the path of other colonial regimes: selling off everything still remaining after the previous pro-Western “reformers” to foreign corporations – at rock-bottom prices. Including local energy plants, Odessa shipyards, and all Black Sea ports. For the first time in history, all Ukrainian agricultural lands are also up for grabs, [so the Ukrainian people soon be paying Western corporations for electricity coming from power stations built by their fathers and working as low-paid servants in their grandfather’s farms… “Banana republic”, eh? – ed.].

If this mad dash to sell off anything and everything isn’t a “closing sale” of a bankrupt state, then what else could it be?

Errors in Interpretation

An idiot who firmly believes that, whatever the bumps in the road, the overall direction to Europe is correct, would respond to everything above with something like this: “the country needed to get rid of the totalitarian heritage sooner or later, and killing the accursed Muscovite mentality within ourselves is painful but necessary. The glorious European tomorrow demands harsh reform today.”

To them, the closures of factories and businesses which fed the country and themselves are, apparently, “necessary reforms”. Of course, we’ve heard it all before, and many times. It hasn’t worked for a quarter century, and it’s not about to start working now. But if imbeciles were able to learn from their mistakes, they wouldn’t be imbeciles.

The smart people, of course, have explained to them before that their desire to somehow fit into EU (or rather, the imaginary version Europe that needs them and will care for them), dead or alive, whole or in part, will not work regardless of what they do – even if they start a war with Russia in their groveling.

Because that’s fitting a huge square peg into a small round hole.

There are numerous reasons while EU and the West in general do not need Ukraine its current form. It simply doesn’t fit EU’s political, economic, or cultural framework. If it did, Ukraine would have successfully eurointegrated in the previous 24 years of trying. If it did, EU wouldn’t let Ukrainian standards of living drop to African levels after the “pro-European” violent takeover, and Ukraine would enjoy the open borders, economic benefits, and other hallmarks of European acceptance it thought it would receive shortly after “choosing Europe”.

Imbeciles don’t understand the very simple thing: EU has plenty of its own industry without the giant Ukrainian factories. EU has plenty of its own population, it doesn’t need 45 million more unemployed – and it doesn’t need the products these people know how to produce huge amounts of: coal, metal, Soviet nuclear reactors and military hardware.

Ukraine was built for a different economic model, with different markets and economic partners in mind. Specifically, the giant Russian market, which supported Ukraine through mutually beneficial trade, huge fossil fuel discounts, and Soviet–era economic connections. Cooperation with Russia kept Ukraine afloat until now and even provided an economic base which, as it turned out, allowed the country to grow a sizable population of hipsters and office workers that forgot why they needed all this unfashionable and smelly industry ( even though it’s obvious to any sane person that the rest of Ukrainian jobs – customer service, offices, banks, etc. – merely exist to serve the needs of the local industry and agriculture).

Trying to become a “service economy”, where other areas are key, is not feasible for Ukraine: as mentioned above, EU doesn’t need 45 million more unemployed, and the world market has plenty of call center workers with better English skills at far lower prices – in India, for example.

A Case Study

I’ll share a simple example – Ukrainian aviation industry. Of course I don’t expect to convince imbeciles of anything, but this high-tech industry exemplifies the degradation of what used to be Ukrainian economy and economic / industrial might.

After the collapse of the Soviet Union there were only three countries in the world which were capable of designing and independently building heavy civilian and military transport planes: USA (Lockheed Martin), Russia (OAK) and Ukraine (“Antonov”). Despite the fact that Ukraine had unique capabilities in producing passenger and cargo civilian airplanes, the production of aircraft has quickly dropped to less than one-tenth of former capacity, for some kinds – less than one percent. By 2000s, Ukraine could produce at most two aircraft a year – and even that was accompanied by huge problems, constant government supervision, and huge subsidies from state budget.

World aviation industry was developing exclusively in the direction of growing monopolies (mergers and acquisitions). Centralized planning and economies of scale, controlled by supposedly commercial corporations (although those are, ultimately, controlled by national governments), turned out to be necessary for surviving and staying competitive on the world market in this high-tech era, where victor is the one who can concentrate the most expertise and industrial capacity in his hands. The costs are extremely high, and staying competitive requires not just large, but gigantic super-scale production.

Currently, the “Boeing” airliners are being made across eight countries, even if they are technically “made in the USA” (some parts and alloys are even provided by the Russian aircraft industry). European “Airbus” is a work of 16 countries (mostly Germany, France, Italy and Spain).

So while these mergers and acquisitions of Western aerospace corporations and industrial capacities were going on… Ukrainian aircraft industry broke off their segment from a larger whole and went looking for mythical “Western investors”. Why did they keep believing such fairytales is still not entirely clear.

Back in the day, USSR aircraft industry produced a third of the world’s aircraft. After the Union’s collapse, this market was divided between the victors, and countries like Ukraine, with its fractured industry, have no hope of catching up.

So basically the village idiots that came to power in newly independent fragments of the Union chose fairytales over scientific and industrial integration with the rest of industrial base, preferring to believe that the West will come and throw money at them. And while they were waiting, the lion’s share of the world market has passed under control of the two aforementioned megacorporations – Boeing (49% of sales) and Airbus Industries (43%). So now they reap all the rewards, and all the other countries combined produce only 8% of the world’s aircraft.

That’s what “bananization” looks like in practice – first world gets high-tech monopolies, the rest are divided and get to grow bananas for minimum wage. And even those bananas are generally owned by foreign corporations.

What can we expect in the future?

In the next few weeks, the new, “European”, utility bills. This may be the biggest shock yet. Of course, there has been a lot of talk about that, but talk is one thing and holding a utility bill equal to half your salary is quite another [average salary in Ukraine is 4000 UAH now, or about $180 – considerably lower than Zimbabwe – ed.]. This is unsustainable for retirees, and very bad news for everybody, including any sort of a large enterprise that needs to pay for electricity, heating, water etc. This would again force a bunch of businesses to close down or flee the “new European economic reforms”.

On top of doubling the utility costs right now, to around 1500 – 4000 UAH, they will increase by another 30 to 40% in the fall – this has already been scheduled with the IMF, so it will certainly happen.

So, utility costs in the fall may get higher than the average salary, and greatly surpass the pensions of the 13 million retirees. And it’s already obvious that the currently bankrupt state will not be able to subsidize more than a tenth of those who should receive subsidies according to law.

Maybe some people still think that the increased utility costs are totally manageable for them and not a big deal.

But even for them, I would recommend against celebrating their personal “switch to European standards”, because the effects of further collapse of economic and financial system are completely unpredictable. For example: once enough people refuse to pay utilities that would trigger another state budget crisis, which could easily topple banks that handle the savings and company finances of the “successful businessmen”. And if the state eventually does declare default, it would lead to collapse of all financial activity, international and domestic.

So what is the conclusion? As they say, you have to pay for everything – including turning one of the richest industrial parts of former USSR into a banana republic.

The social and economic catastrophe that the country keeps sliding towards is, to large extent, the consequence of our citizens support of the governments that got them there, the political ideals they worshipped, as well as Ukrainians believing that everybody else owes them something: USA owes them because Ukraine is supposedly fighting Russia, Europe – because Ukraine supposedly protects it from Russia’s supposed aggression, and Russia – simply because Ukrainians are so wise and great that Russians should admire and serve them naturally.

The moral of this story is very simple: as the Ukrainian experience has once again shown, the common wisdom that teaches us whoring is a despised activity is true in geopolitics, as well. In the end, you get screwed, not paid, abandoned, and embarrassed to look honest people in the eyes. Lots of hassle, lots of shame, very little profit. Only village fools willingly go down that path.


 Original by Yuri Lukashin