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Welcome to Ukraine – Now the ‘Somalia of Europe’


The startling reversals in Syria and Iraq now afford us our daily whiff of gunpowder and desperation, and Ukraine has been largely swept from the front pages. This is a matter of no small concern to the incompetent train wreck that is its government, because the flow of financial life support on which it relies is, to a large extent, dependent upon the sense of urgent emergency it is able to convey.

So long as Kiev is able to fog the media’s glasses with “Russian aggression!!!” and a dire sense of a building menace, western leaders do not press it too hard for reforms, and are more likely to spit fat wads of cash because…well, because it’s an emergency.

And, of course, it is. I don’t want to create the impression I think the Ukrainian government is faking its sense of crisis, because Ukraine as a state is in a power-dive that is making the the wings shudder and shed rivets.

Much of the government itself actually does not realize just how bad it is, because its clown-car membership is too busy throwing haymakers at one another in the legislature and squabbling over who is (a) the most Ukrainian, and (b) the biggest crook. Mistrust among the factions also contributes to a degree of compartmentalization which prevents more than the broad outlines of the catastrophe from being seen.

We could feel a lot of things, dependent on our position and our sympathies. We could feel vindicated, if we were among those who foretold disaster from the hurried rounding-up of thieves, rabid nationalists, opportunist criminals and sycophants and labeling the result “the government”.

We could feel stunned and disillusioned, if we were among the formerly-giddy dissident morons jumping up and down on the Maidan, who expected to be opening their Christmas presents in the European Union this year.

And if we were among the poor sods who live there, who trudge to work every day from Monday to Friday, pick up a paycheck that buys less every month, and try to support a family on it… we could feel bewilderment, gnawing fear and a gathering apprehension that the world is spiraling down and down to a sunless pit of misery where no light reaches.

For how much longer can the happy talk of visa-free travel and someday-prosperity hold the stink of failure at bay?

“Everyone thought Ukraine would suddenly turn into Poland,” said mechanic Taras Yakubovsky, sitting by a cast-iron woodburner in his small garage, where work has dried up because customers can no longer afford car repairs. “But we’ve become more like Europe’s Somalia.”

What’s really going on in Ukraine? A good deal of what we get is from nationalist expats who don’t live there, and for whom it is easy to exhort their hereditary countrymen to redouble their efforts, to hold out bravely against the slavering Russian invader, to let faith carry them onward when hope is gone – expats like bad-tempered fathead Taras Kuzio in Alberta, and bitter, thwarted Political-Science professor Alexander Motyl at Rutgers in New Jersey.

This smokescreen is complicated by deliberate duplicity and sleight-of-hand by the Ukrainian government, enabled by an English-speaking media which uncritically repeats whatever it is told by Kiev, without investigating, thereby giving it the weight of fact. Data on the economy is frequently sourced from the State Statistics Service of Ukraine. I don’t want to say they’re simply pulling figures from their ass, because it always infuriates me when people suggest Russia simply makes up its statistics. But a lot of the Ukrainian numbers just do not add up.

The facts have to be horrible: according to a report entitled “Millennium Development Goals: Ukraine 2000-2015”, as many as 33% of Ukrainians are forecast to be living below the poverty line by the end of this year. But the official unemployment rate, as reported by the State Statistics Service of Ukraine, trended steadily downward from a peak of 11% in January 2015 to 9.4% at the end of the second quarter. Does that make any sense? It might, if more people were employed every month, but the bottom fell out of wages.

And you could believe that, because the currency lost 70% of its value against other currencies in just a year. Over the same period, utility rates jumped by 188% and the cost of food and beverages increased by 154%.

But if that’s what happened, how can we account for a reported per-capita GDP adjusted for purchasing power parity (PPP), according to the World Bank, which decreased only modestly from $8,337.93 in 2013 to $8,267.07 a year later?

So, you’re telling me Ukrainians – in real purchasing-power terms – experienced only a modest loss of about $71.00 a year when the currency tanked and inflation spiked? According to Reuters, the collapse of the currency alone has brought the average wage down to $150.00 per month. That was reported this past Spring.

Have things gotten better since then? You know they haven’t. If we multiply $150.00 by 12, I get $1,800.00. What’d you get? Okay, so I’m not crazy. But the World Bank is reporting a purchasing power wage which is more than 4 times higher. How is that possible?

Incidentally, in case you were curious or perhaps an historian, the record high per-capita GDP adjusted for PPP in Ukraine – $10,490.37 – was achieved in 1990, the year before Ukraine declared its independence from the Soviet Union. Ditto population, which crested just 3 years later.

Anyway, back to, how is that possible? It’s not, is the short answer. Although per-capita GDP is an estimate, and reflects living standard rather than an actual measure of income, it can’t be that far out. In a classic rearranging-the-deck-chairs-on-the-Titanic display of bizarre pretended normality, Ukrainian expat-American finance minister Natalie Jaresko’s speech at the meeting of the National Council for Reforms (because calling it the Blah-Blah Council for Yeah Whatever would not have fitted with the theme of Keeping Up Appearances, although it would have been accurate) just a few weeks ago was sprinkled liberally with advocacy for…tax cuts. Uh huh; specifically, she wants to (a) cut the payroll tax in half in 2016, (b) implement a new income tax rate of 18% for personal income as well as corporate profit tax, (c) cut that rate by a percentage point the following year, to 17%, and (d) abolish the payroll tax in 2018, replacing it with a flat tax rate on salaries of 20%.

This plan, she says, “will enable us to implement one of the lowest salary taxes compared to the EU-countries; 16% of our citizens will be enjoying the social tax exemption and will not be paying 3.6% in payroll tax anymore.”

Umm…Natashka…that still leaves more than 16% – at current figures – who are living below the poverty line. I’d love to know how you are going to implement a tax cut in a country that has lost a third of its tax base as well as its industrial heartland, which has blown all its reserves on a costly civil war and just severed its relationship with its largest single trading partner. Is there a prize for Most Ridiculous Time For a Tax Cut?

George W. Bush, you’ll recall, implemented a tax cut in the middle of a war which he ran off the books, funding it each year with emergency supplementals which did not figure in the budget. The USA borrowed that; towards the end, almost exclusively from China. How’d that work out, do you remember?

Ukraine was pretty consistently one of the poorest countries in Europe. But it is now, according to the IMF which keeps it barely breathing with irregular transfusions of emergency cash, rubbing shoulders with Uzbekistan and the Republic of the Congo, and below Vietnam, Honduras, East Timor and Sri Lanka; 18 positions below Georgia. Yet the trade deficit – reported by the State Statistics Service of Ukraine – was only $356 Million in October of this year: in July Ukraine recorded a surplus, selling $117 Million more than it bought from its trading partners!

Wages – again reported by the State Statistics Service, are rising steadily, and were 4,532 hryvnia per month on average, in October. That’d be $198.34 USD by today’s exchange rate, or $2,380.08 annually. That’s still $5,886.99 short of the reported per-capita GDP adjusted for PPP, which is supposed to be a general reflection of the standard of living. Is that a little off? I think it is.

Russia has said it will not abandon Russian-speaking Ukrainians to nationalists. I dare to hope Russia has a Plan B in mind which will save Ukraine, once the EU and Washington tire of playing with it and move on to ruin someone else.

The east of Ukraine will never again let itself be ruled by Kiev, and the generation currently at maturity will never forgive the rest of Ukraine for not stopping Kiev when it turned the full force of the state military on them. But an uneasy business relationship could prevail under federalization with broad autonomy, and perhaps someday the country could once again throw its shoulder to the wheel together with a common purpose.

Meanwhile, spare a moment of pity, in this season of family and forgiveness and plenty, for the Ukrainians who did not speak out in protest – for whatever reason – when the unthinkable happened, and have since paid such a terrible price for their passivity


Originally appeared: The Kremlin Stooge