Blue &Yellow: Politics and Economics in Ukraine

First, Ukraine -- like all the other countries of the world -- has become an unwilling financial donor to a void that opened up in the United States. The outflow of capital from our country has resulted in a catastrophic plunge of the stock-market indexes and an abrupt decapitalization of Ukrainian enterprises. By contrast, the U.S. markets have seemed virtually stable. 

Second, Ukraine -- like many Western countries -- was vulnerable because the economy had been weakened by inflated global prices for oil and gas. Before the crisis struck, Ukraine was de facto a major contributor to the Stabilization Fund in Russia. Kyiv had no opportunity to build up its own reserves like Russia, many Persian Gulf energy producers, China, and other countries were able to do. Now those countries have funds to provide assistance to their own banks and companies and even to offer credit to Western countries. Ukraine is left to compete with other countries for help from the International Monetary Fund or to cope on its own.

Third, Ukraine's economy was relatively weak even before the crisis struck. It is already in its second year of a rapidly rising trade deficit and a negative hard-currency-payments balance. This situation meant that the halt of foreign-capital inflows brought on by the crisis has struck the national currency hard, producing a sharp decline in production and consumption.

Fourth, the slowdown of commodities markets abroad means a decrease in orders for Ukrainian industrial and agricultural products, decreases in the prices for key exports, and sharp losses for major enterprises.

Major Reform Needed

Clearly, Ukraine's recovery plan must extend beyond merely addressing the immediate effects of the crisis. Ukraine must not only cover financial deficits and credits, but it must also recover the position of its enterprises on global markets and ensure that production is sufficient for domestic demand. A recovery program should include both immediate, extraordinary measures to counter various financial implosions and a complex of structural and institutional reforms, without which we will be unable to compete in today's globalized and pitiless world.