Ukraine - iuj.ac.jp › mlic › EIU › Profile › Ukraine › 1998_Main_report… · Ukraine...

COUNTRY PROFILE

UkraineOur quarterly Country Report on Ukraine analyses currenttrends. This annual Country Profile provides backgroundpolitical and economic information.

1998-99The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For over 50 years it has been a source of information on businessdevelopments, economic and political trends, government regulations and corporate practice worldwide.

The EIU delivers its information in four ways: through subscription products ranging from newslettersto annual reference works; through specific research reports, whether for general release or for particularclients; through electronic publishing; and by organising conferences and roundtables. The firm is amember of The Economist Group.

London New York Hong KongThe Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit15 Regent Street The Economist Building 25/F, Dah Sing Financial CentreLondon 111 West 57th Street 108 Gloucester RoadSW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong KongTel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

Website: http://www.eiu.com

Electronic deliveryEIU ElectronicNew York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

This publication is available on the following electronic and other media:

Online databases CD-ROM Microfilm

FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK)Tel: (44.171) 825 8000 Inc (US) Tel: (44.171) 266 2202

DIALOG (US) SilverPlatter (US) University Microfilms Inc (US)Tel: (1.415) 254 7000 Tel: (1.800) 521 0600

LEXIS-NEXIS (US)Tel: (1.800) 227 4908

M.A.I.D/Profound (UK)Tel: (44.171) 930 6900

Copyright© 1998 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author’s and the publisher’s ability. However,the EIU does not accept responsibility for any loss arising from reliance on it.

Symbols for tables“n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK

ISSN 1356-4196

Comparative economic indicators, 1997

0 10 20 30 40 50

RussiaPoland

Czech RepublicUkraine

HungaryRomania

KazakhstanSlovakiaCroatia

SloveniaYugoslaviaUzbekistan

BelarusBulgaria

LithuaniaLatvia

EstoniaMacedonia

GeorgiaAzerbaijan

TurkmenistanAlbania

MoldovaKyrgyz Republic

ArmeniaTajikistan

Gross domestic product$ bn

Sources: EIU estimates; national sources.

462462462462462462462462462462462137137137137

0 1,000 2,000 3,000 4,000 5,000

SloveniaCzech Republic

HungaryCroatia

SlovakiaPolandRussia

EstoniaLithuania

MacedoniaLatvia

RomaniaYugoslavia

KazakhstanBelarus

BulgariaUkraineGeorgiaAlbania

UzbekistanTurkmenistan

MoldovaAzerbaijan

ArmeniaKyrgyz Republic

Tajikistan

Gross domestic product per head$


9,0539,0539,0539,0539,0539,0539,0539,0539,0539,0539,053

0 20 40 60 80 100

BulgariaRomaniaTajikistan

TurkmenistanBelarus

UzbekistanAlbania

Kyrgyz RepublicYugoslavia

HungaryKazakhstan

PolandUkraine

RussiaArmeniaMoldova

EstoniaSlovenia

LithuaniaLatvia

Czech RepublicGeorgiaSlovakiaCroatia

AzerbaijanMacedonia

Consumer prices% change, year on year


1,0831,0831,0831,0831,0831,0831,0831,0831,0831,0831,083155155155

1,083155

1,0831,083155

-20 -15 -10 -5 0 5 10 15

GeorgiaBelarusEstonia

YugoslaviaKyrgyz Republic

PolandSlovakiaCroatia

UzbekistanAzerbaijan

HungaryLatvia

LithuaniaSloveniaArmenia

KazakhstanTajikistan

MacedoniaMoldova

Czech RepublicRussia

UkraineRomaniaBulgariaAlbania

Turkmenistan

Gross domestic product% change, year on year


EIU Country Profile 1998-99 © The Economist Intelligence Unit Limited 1998

March 31st 1998 Contents

3 Basic data

4 Political background4 Historical background7 Constitution and institutions9 Political forces

11 International relations and defence

12 The economy12 Economic structure13 Economic policy16 Economic performance17 Regional trends

19 Resources19 Population20 Education20 Health21 National resources and the environment

21 Economic infrastructure21 Transport and communications21 Energy provision22 Financial services

24 Production24 Industry25 Mining and semi-processing26 Agriculture27 Construction

27 The external sector27 Merchandise trade28 Invisibles and the current account29 Capital flows and foreign debt30 Foreign reserves and the exchange rate

31 Appendices31 Sources of information

1

© The Economist Intelligence Unit Limited 1998 EIU Country Profile 1998-99

31 Reference tables31 Consolidated government budget32 Money supply and credit32 Gross domestic product32 Gross domestic product by expenditure33 Gross domestic product by sector33 Prices and earnings33 Population34 Labour force34 National energy statistics35 Banking statistics35 Industrial production35 Sectoral origin of industrial production36 Agricultural production36 Livestock statistics36 Private agricultural production37 Exports38 Imports38 Main trading partners39 Balance of payments, IMF estimates40 External debt40 Foreign reserves40 Exchange rates

2


Ukraine

Basic data

Land area 603,700 sq km, of which 58% is cultivated

Population 50.48m (January 1st 1998)

Main towns Population in ’000, 1995

Kiev (capital) 2,635Kharkiv 1,576Dnipropetrovsk 1,162Odessa 1,160Donetsk 1,102Lviv 806

Climate Situated in the central part of the northern temperate zone, Ukraine has amoderate continental climate with four distinct seasons. The southern coast ofthe Crimea has a Mediterranean climate. The average yearly temperature inKiev is 7.2°C. The coldest month is January when the average temperature is5.8°C, and the hottest month is July when the average temperature is 19.3°C.Precipitation in the Kiev region averages 600 mm per year

Language Ukrainian, a member of the East Slavonic group, is the official language; butRussian is as widely spoken in eastern Ukraine and parts of the countryside

Measures Metric system

Currency The hryvnya replaced the karbovanets on September 2nd 1996, at the rate ofHRN1:Krb100,000. Average exchange rate in 1997: HRN1.86:$1. Exchange rateon March 20th 1998: HRN2.04:$1

Time Two hours ahead of GMT

Public holidays, 1998 January 1st-2nd (New Year); January 7th (Christmas, Orthodox Church calen-dar); March 8th (International Women’s Day); April 17th-19th (Good Fridayto Easter, Orthodox Church calendar); May 1st-2nd (Labour Day); May 9th(Victory Day); May 24th-25th (Holy Trinity, Orthodox Church calendar);August 24th (Ukrainian Independence Day); December 31st (New Year’s Eve)

Ukraine: Basic data 3


Political background

Ukraine’s constitution divides power equally between the president, currentlythe moderately reformist Leonid Kuchma, and parliament. This arrangementhas in practice led to regular conflict between the two bodies often making thedirection of policy unclear. There is little in the way of a formal party systemwith the balance of power in parliament held by several centrist parties definedmore by their leaders than by their policies. Party identification among thepopulation is low and volatile, although the Communists have a solid base ofsupport, but not enough to guarantee a majority.

Historical background

Until the Soviet Union’s collapse in 1991, Ukraine had never been an inde-pendent state. Literally translated, the country’s name means “on the edge”, or“borderland”, and for most of the past millennium it has been exactly that—afrontier region split between neighbouring powers.

The centre of earlySlavdom—

From the 9th to the 13th centuries Ukraine was the centre of Kievan Rus, theloose collection of princedoms founded by Viking merchant-adventurers, thatgave birth to Slav civilisation. In 1240 it suffered the first of a series of invasionswhich were to last over 700 years, with the arrival of a Mongol army under agrandson of Genghis Khan. In 1362 the Mongols were driven out by the GrandDuchy of Lithuania, which in 1569 merged with the kingdom of Poland toform the Polish-Lithuanian Commonwealth. Not until 1654 did Ukraine forgeties with Russia, when a peasant uprising led by the Cossack leader BohdanKhmelnitsky resulted in the handover of Ukrainian lands east of the riverDnieper to Muscovy. The last vestiges of Ukrainian autonomy were lost to theRussian empress, Catherine II, in 1781; two years later she annexed Crimea,previously an Ottoman protectorate. In 1795, under pressure from moreCossack rebellions and Russian expansionism, the Polish Commonwealth col-lapsed, leaving western Ukraine in the hands of the Austro-Hungarian empire.

—Ukraine was dividedbetween east and west—

The 19th century saw the birth of the modern Ukrainian national movement. InRussian-ruled eastern Ukraine it centred on use of the Ukrainian language,developed as a literary medium by the poet Taras Shevchenko. In the Habsburg-ruled west, Ukrainians were free to form their own cultural and political institu-tions in competition with the Poles, who remained dominant in the region untilthe second world war. The movement came to a head in the chaotic aftermathto the Russian revolution, when Ukrainian nationalists, backed by volunteerarmies, declared independence in Kiev and in the western capital of Lviv. By theend of 1918, however, Kiev’s Ukrainian People’s Republic had been swept awayby the Russian Red Army, and Lviv’s West Ukrainian National Republic by thePoles, a situation the victorious Allies were not inclined to reverse at the Parispeace conference of 1919.

Between the wars, the territory of present-day Ukraine was split between theSoviet Union in the east, and Poland, Romania and Czechoslovakia in the west.On the Polish side of the border, moderate Ukrainian parties increasingly lost

4 Ukraine: Historical background


ground to the Organisation of Ukrainian Nationalists (OUN), a terrorist groupwhich assassinated government officials, provoking violent reprisals. In the east,under Soviet rule, Ukrainians suffered Stalin’s purges, and, from 1929-33, depor-tations and an artificially induced mass famine, estimated to have killed 5m.

A new wave of terror swept Ukraine with the German invasion of 1941. Whilethe vast majority of Ukrainians joined the Soviet army, in the west OUN andother nationalist groups initially supported the Nazis. But when Germany’sunwillingness to back Ukrainian statehood became clear, the nationalistsformed an independent partisan army, the remnants of which survived intothe 1950s. During the German occupation, Ukraine lost one in six of its popul-ation, nearly half of them Jews.

—until full incorporationinto the Soviet Union

in 1945

With the Soviet Union’s takeover of western Ukraine in 1945, and Khrushchev’stransfer of Crimea to the republic in 1954, Ukraine attained its present-dayborders. The Khrushchev thaw saw the beginnings of a dissident movement,centring, as under the tsars, on the language issue. The leader of the CommunistParty of Ukraine (CPU) from 1963, Petro Shelest, allowed limited culturalrevival in the republic, but in 1972 he was replaced by a notorious reactionary,Volodymyr Shcherbytsky. As a result, Ukraine was one of the last republicsto benefit from Mikhail Gorbachev’s policy of glasnost (openness), and it wasnot until Shcherbytsky’s sacking in 1989 that Ukraine saw large-scale anti-Communist demonstrations, led by the newly formed opposition group, Rukh.

From 1989 to 1991 events moved, as in the rest of the Soviet Union, withbewildering rapidity. The Uniate and Ukrainian Orthodox churches were legal-ised; environmentalists began to speak out on the 1986 nuclear accident atChernobyl; historians on Stalin’s terror and famine. In Mr Gorbachev’s semi-free parliamentary elections of March 1990, Rukh won one in four seats, mostlyin Kiev and western Ukraine. In July of the same year Communist deputiesjoined force with the nationalists to declare Ukrainian sovereignty, claimingthe supremacy of Ukrainian law over Soviet law and Ukraine’s right to itsown armed forces and currency. The following January an emergingnationalist-Communist bloc within the CPU, led by Leonid Kravchuk, gainedstrength in opposition to the shooting of unarmed demonstrators in Lithuania,and in March Mr Kravchuk undermined Mikhail Gorbachev’s referendum onthe maintenance of the Soviet Union by inserting his own question onUkrainian sovereignty. Although 70% of the population voted for the preserva-tion of the Soviet Union, 80% also approved Mr Kravchuk’s proposal thatUkraine be a part of a looser union of sovereign states.

Events came to a head on August 19th 1991, with an attempted coup byhardliners in Moscow. Mr Kravchuk and his colleagues were faced with achoice: to declare for the Soviet Union, and risk being undermined if the headof the democratic opposition in Russia, Boris Yeltsin, won the argument inMoscow leading to the break-up of the Soviet Union, or to throw in their lotwith the nationalists, and stay in power at the head of an independentUkraine. After three days sitting on the fence, Mr Kravchuk plumped for thelatter. On August 24th he banned the CPU and resigned his CPU posts; laterthe same day the Ukrainian parliament declared independence.

Ukraine: Historical background 5


Economic collapsefollowed independence

Having transformed himself from a communist ideologue into a Ukrainiannationalist, Mr Kravchuk won a comfortable victory in the presidential elec-tion on December 1st 1991, winning 62% of the vote. A simultaneous referen-dum to confirm parliament’s declaration of independence was supported by90% of voters. Even Russian-speaking eastern Ukraine and Crimea seem tohave believed that the Ukrainian economy would prosper after independenceand voted in its favour.

Mr Kravchuk made a serious error in failing to implement painful but crucialeconomic reforms quickly during the period of post-independence optimism.Unlike Russia, Ukraine maintained price controls and subsidies to state-ownedindustry, and failed to free up trade and private enterprise. The result washyperinflation, economic collapse and widespread poverty.

In October 1992 Mr Kravchuk replaced his unpopular prime minister, VitoldFokin, with a relatively unknown technocrat, Leonid Kuchma, formerly thehead of the Pivdenmash missile factory in Dnipropetrovsk. Mr Kuchma pressedfor faster economic reform, but Mr Kravchuk never gave him full backing, andsacked him in September 1993. However, continued economic collapse andgrowing public discontent finally compelled Mr Kravchuk to concede earlyparliamentary and presidential elections.

The 1994 elections Mr Kravchuk was beaten in the second round in July 1994 by Mr Kuchma, whowon 52% of votes cast. Voting patterns split sharply between east and west,with nationalist western Ukraine perceiving Mr Kuchma as pro-Russian, andtherefore opting for Mr Kravchuk. In contrast, Russified eastern Ukraine votedoverwhelmingly for Mr Kuchma. However, it soon became obviousthat Mr Kuchma had no intention of becoming a Russian puppet; underMr Kuchma, Ukraine has distanced itself from the Commonwealth of Inde-pendent States (CIS), and built new ties with the West.

In November 1994, fresh from his electoral success, Mr Kuchma unveiled aradical IMF-approved economic stabilisation programme and promoted re-formers within the government. However, reforms remained unpalatable toleft-wingers, who commanded a majority in parliament after the elections ofMarch 1994. These included members of the CPU, the Socialist Party ofUkraine, the Agrarians and a number of independents. To overcome oppos-ition to his programme, Mr Kuchma sought to increase the presidency’s powersthrough the introduction of a temporary constitution, and succeeded in doingthis in June 1995. The agreement provided Mr Kuchma with limited specialpowers for a one-year period until the adoption of a permanent new constit-ution. Parliament retained some powers, in particular the right to pass legis-lation and veto presidential decrees, but promised to use them sparingly. Inreturn, the president appeared to concede that his reform programme shouldbe moderated, and demoted key reformers.

6 Ukraine: Historical background


Important recent events

April 1986: Chernobyl nuclear accident.September 1989: The reactionary head of the Communist Party of Ukraine,Volodymyr Shcherbytsky, is sacked; the independence movement, Rukh, holds itsfirst congress.March 1990: Rukh deputies win one-quarter of seats in semi-democratic electionsto the Ukrainian Supreme Soviet.July 1990: The Ukrainian Supreme Soviet declares sovereignty.August 1991: Following a failed left-wing coup in Moscow, the Ukrainianparliament declares independence.December 1991: Independence is approved in a referendum, and Leonid Kravchukis elected first president of independent Ukraine. The resignation of MikhailGorbachev on December 25th confirms the break-up of the Soviet Union.November 1992: The rouble ceases to be legal tender in Ukraine, and is replacedby an interim currency, the karbovanets or “coupon”.January 1994: A tripartite agreement with Russia and the US commits Ukraine tosurrendering its nuclear weapons to Russia.March 1994: Socialists and Communists win a majority of seats in Ukraine’s firstpost-independence parliamentary election.July 1994: Leonid Kuchma defeats Mr Kravchuk in presidential election.June 1996: Parliament approves a new constitution under which it maintainssignificant powers.September 1996: A new currency, the hryvnya, is introduced.May 1997: Mr Kuchma and Boris Yeltsin sign a friendship and co-operation treaty.Russia recognises Ukraine’s borders, and Ukraine grants Russia a 20-year lease onSevastopol, headquarters of the Black Sea Fleet.March 1998: A parliamentary election is held under a new semi-proportional system.

Constitution and institutions

The new constitutionof 1996

Despite the constitutional compromise, the power struggle between parliamentand president continued, and the government’s reform programme was imple-mented slowly and only in part. Even reformist deputies became sceptical ofMr Kuchma’s ability to push through changes, and, like their Communistcounterparts, opposed his plans to increase the powers of the presidency at theexpense of parliament. The result was the adoption by parliament of a newconstitution on June 28th 1996 under which parliament succeeded in main-taining significant powers, in particular the right to initiate legislation and toveto key presidential appointments. The process of constitutional reform con-tinued into 1997, when the Law on the Cabinet of Ministers was adopted,streamlining decision-making and reducing the number of ministries.

The new electoral lawof 1997

In September 1997 parliament passed a new electoral law, under which half ofits 450 seats are to be elected from single-seat constituencies, as previously, andhalf according to a system of proportional representation, from party lists.This law—which applies from the parliamentary election of March 29th 1998—favours parties with strong organisation, such as the CPU, and as such wasinitially opposed by Mr Kuchma. It was designed to reduce the number ofunaligned independent deputies, thereby consolidating Ukraine’s fledgling

Ukraine: Constitution and institutions 7


party system. Presidential elections, held every five years and next due inOctober 1999, will still consist of a two-round direct vote.

The balance of power Unlike Russia, which has a strongly presidential constitution, power in Ukraineis evenly divided between the president and parliament, while the judiciaryalso has an important role. Both the president and parliament retain the right toinitiate legislation, although the president retains a veto over parliamentary bills.Although the president nominates candidates to the most important positions ofstate, such as the prime minister, the chairman of the National Bank of Ukraine(NBU, the central bank), and the State Property Fund (SPF), these are subject toapproval by parliament. Alongside its legislative role, parliament also acts as anoverseer of the activities of government. Accordingly, parliament must approvethe state budget and an annual privatisation programme presented by the SPF. Thehighest judicial body in the land is the Constitutional Court, which also acts as anarbiter on constitutional issues. The court is comprised of 18 judges, six nominatedby each of the president, the parliament and the Board of Judges. Members ofthe court were chosen for the first time in 1996.

Crimea

The Crimean peninsula, presented to Ukraine as a “present” to cementRussian-Ukrainian union by Khrushchev in 1954, has been a thorn in Ukraine’s sideever since independence. Two-thirds of the peninsula’s 2.7m population are ethnicRussians, and the region’s support for Ukrainian independence is at best lukewarm:only 54% of the peninsula’s population voted for independence on December 1st1991, the lowest vote in the country. Another 10% of the population are MuslimTatars, deported to Central Asia by Stalin in 1944 and only allowed to return to theirhomeland, which can ill afford them homes or jobs, in the late 1980s. Since independence Kiev and the Crimean capital of Simferopol have engaged incontinuous constitutional tussles: Crimeans fear that Kiev will erode their autonomy,Ukrainians fear a pro-Russian separatism. These fears were heightened in January1994 when a strident pro-Russian, Yuri Meshkov, won the Crimean presidentialelection, followed two months later by the victory of his Russia bloc in the Crimeanparliamentary election. Mr Meshkov’s first act was to restore the Crimeanconstitution of May 1992, which claimed virtual independence from Ukraine.

By early 1995, however, Mr Meshkov’s popularity had waned, thanks to turf-warswith his own parliament and his failure to fulfil economic promises. In March Kievwas able to suspend Crimea’s constitution and annul its presidency. In June 1995 theCrimean parliament agreed a new draft constitution which accepted the status of thepeninsula as an autonomous republic within Ukraine. In return, the Ukrainiangovernment signalled that it would allow Simferopol greater freedom in shapinglocal economic policy. Tension was further eased by the Russian-Ukrainian FriendshipTreaty, which settled the fate of the naval base at the Crimean town of Sevastopol.Nevertheless, ethnic tension in Crimea remains the chief threat to Ukraine’s nationalsecurity. Local officials deeply resent any intervention from Kiev, such as adeclaration in late 1997 that the Crimean town of Yalta be a free economic zone.The situation is further exacerbated by the tendency of Russian politicians such as themayor of Moscow, Yuri Luzhkov, to make populist claims over the region.

8 Ukraine: Constitution and institutions


Regionalisation Ukraine is divided into 24 oblasts (regions), as well as the city of Kiev which hasa special status on a par with that of a region, and the autonomous republic ofthe Crimea. Each region is further subdivided into raions (districts). Each oblastand raion has its own elected Council of Deputies, still usually referred to as aSoviet, and a parallel state administration. The state administration in theregions is headed by a governor who is appointed by the president. Althoughthe Crimea has its own constitution, parliament and government, these re-main subordinate to the central government in Kiev.

Political forces

While the first parliamentary election to be held in independent Ukraine inMarch 1994 produced a strong showing by the left wing, with the CPU securing91 seats and the Socialist Party of Ukraine a further 15 seats, the most notablefeature was the large number of independent deputies elected. Out of a total450 seats, 225 were won by candidates running on independent tickets.

As a result, power has been more or less evenly distributed between reformers,anti-reformers and centrists. With no group able consistently to secure a majority,passing legislation takes an inordinate amount of time, with long debates andlegislation subject to vigorous amendment. Nevertheless, a number of distinctparliamentary factions have emerged. This has been less because of any desire toimprove the effectiveness of parliament than because only members of registeredfactions can sit on parliamentary committees. Ten factions were officially registeredin the 1994-98 parliament, the Communist Party of Ukraine being the largest by far.The newest faction is Hromada, founded by a former prime minister, PavloLazarenko, who was promoted by Mr Kuchma only to be sacked in July 1997 in theface of international protests at growing levels of corruption.

The 1998 parliamentaryelection

Preliminary results from the 1998 parliamentary election show some consolid-ation in the party system arising from a new requirement that parties obtain atleast 4% of the total vote before obtaining any of the 225 seats allocated on aparty list basis. The remaining 225 seats, allocated to regional constituencies,were still dominated by independent candidates, who obtained 114 of thetotal. With the left performing well, but unable to obtain an outright majority,the way in which this amorphous group of independents splits between thereformists and the left will determine the character of the new parliament.Anecdotal evidence indicates that a large proportion of the independent depu-ties are businessmen, which may bode well for the reform process, althoughthe strong showing by the Communists, who increased their total number ofseats, is a disappointment to the president.

1998 parliamentary election, preliminary results

Constituency Party list Total parliamentaryseats seats seats

LeftCommunist Party of Ukraine 39 84 123Socialist and Peasant Party bloc 3 29 32Progressive Socialist Party 3 14 17

continued

Ukraine: Political forces 9


Constituency Party list Total parliamentaryseats seats seats

CentristHromada 7 16 23 (opposes government)Social Democratic Party 2 14 16 (pro-reform, ambiguous to government)

Pro-governmentPeople’s Democratic Party 11 17 28Rukh 14 32 46Green Party 0 19 19Agrarian Party 8 0 8

Independents 114 0 114Other parties 24 0 24Source: press reports.

Main political figures

Leonid Kuchma: Formerly the director of the Pivdenmashmissile factory in Dnipropetrovsk, Mr Kuchma served asprime minister under Leonid Kravchuk before resigning inprotest at the slow pace of economic reform. He was electedpresident in July 1994, thanks to support from Russifiedeastern Ukraine. However, once in office, Mr Kuchmaresolutely defended Ukrainian statehood and strengthenedties with the EU and NATO. As a result he has seen his powerbase move from east to nationalist west. Seen as a reformerwhen he came to power, Mr Kuchma has since provedsomething of a disappointment. Elected on promises ofeconomic reform, his prospects in the 1999 presidentialelection will be weakened in the absence of pronouncedeconomic growth.

Pavlo Lazarenko: Appointed prime minister in July 1996,and sacked a year later, Mr Lazarenko has strong links withthe industrial management class, in particular with the gasdistribution company United Energy Systems, to which hehanded a large chunk of the gas market while in office. Anex-chairman of the company, Yulya Tymoshenko, is co-headof his parliamentary faction Hromada, which he relaunchedin September 1997. Whether Mr Lazarenko runs for thepresidency will depend on how well Hromada does in theMarch 1998 parliamentary election, and on his ability toevade criminal prosecution. Western governments wouldview a President Lazarenko as a retrograde step.

Yevhen Marchuk: Head of the Ukrainian KGB during thecommunist years, Mr Marchuk served as prime minister from1995 to 1996, when Mr Kuchma sacked him for having usedthe post to build a rival power base. A member, togetherwith the former president, Leonid Kravchuk, of the Social

Democratic Party of Ukraine, he heads the Social MarketChoice faction in parliament. In October 1997 he announcedthat he will run for the presidency: a moderate reformer anda fluent English-speaker, he will be one of the West’spreferred candidates.

Oleksandr Moroz: The chairman of parliament and theleader of the Socialist Party of Ukraine, Mr Moroz has been aconsistent opponent of market reform. He is expected todeclare his candidacy for the presidential election. If he canwin the backing of the CPU, and keep his own Socialistsbehind him, he will be a strong candidate, thanks largely toUkraine’s 15m impoverished pensioners.

Vyacheslav Chornovil: Mr Chornovil leads Rukh, themoderate rump of the nationalist movement that tookUkraine to independence. In the 1960s he campaignedagainst the Soviet Union’s persecution of Ukrainian writers,serving many years in labour camps as a result. His party lostmuch of its influence after independence, but is expected todo better under the new electoral system.

Viktor Yushchenko: The chairman of the National Bank ofUkraine (NBU, the central bank), has won widespread respectboth at home and within the international community forretaining the NBU’s independence and for keeping monetarypolicy tight in the face of demands for soft credits from theindustrial lobby. Mr Yushchenko was re-elected for a secondfour-year term by parliament in February 1997. A popularand charismatic figure, his name has also been linked to thepresidency. Should he decide to stand, his candidaturewould be welcomed by pro-reform groups and Westerncountries.

10 Ukraine: Political forces


International relations and defence

Since independence, the main aim of Ukraine’s foreign policy has been tostrengthen ties with the West, while avoiding a rift with Russia, which remainsits largest trading partner and provider of much-needed energy imports. Thebalancing act has grown easier in recent years, as Russia’s own relations withthe West have improved, and Ukraine’s 11m ethnic Russians have becomereconciled to the status quo.

Independence came as a something of a surprise to Ukrainians, and even moreso to the outside world. Relations with Russia worsened further when Ukraine’sinexperienced new leadership refused to surrender the strategic nuclear mis-siles stationed on their soil. The issue was not resolved until January 1994,when, in a tripartite agreement with Russia and the United States, Ukraineagreed to hand over its warheads to Russia in exchange for aid, nuclear fuel andvague security guarantees.

Since then, Ukraine’s relations with the West have improved dramatically. In1994 it became the fourth-biggest recipient of US bilateral aid after Israel, Egyptand Russia, and early in the following year the IMF backed Mr Kuchma’s re-form programme and twisted Russia’s arm into rescheduling Ukraine’s fueldebts. Mr Kuchma has made numerous visits to North American and Europeancapitals, and received state visits from Western leaders, including the US pres-ident, Bill Clinton, in return. In 1995 Ukraine joined the Council of Europe,and in January 1997 a trade agreement came into force giving it preferentialaccess to European markets.

Ukraine’s relations with Russia, in contrast, have been rocky. Squabbles overthe fate of the Black Sea Fleet and its headquarters at Sevastopol meant re-peated postponement of a friendship treaty reconfirming mutual borders.Ukraine’s inability to pay for energy imports, and its alleged siphoning off ofRussian gas meant for Western markets, have also been sources of friction.Things have improved recently, with the signing of the friendship treaty inMay 1997 and with the ending, in November 1997, of a six-month trade war,during which Russia imposed punitive anti-dumping tariffs on Ukrainiansugar. Nevertheless, Ukraine has refused to join the customs union or militarystructures of the CIS, and has made efforts to diversify energy imports awayfrom Russia. One such step was the formation in 1997 of GUAM, with Georgia,Azerbaijan and Moldova, of an informal group whose aim is to establish traderoutes, particularly for gas and oil, from the Caspian to the Black Sea.

Defence Although it inherited a barrage of nuclear weapons from the Soviet Union,Ukraine is no longer a nuclear power. It surrendered all its tactical nuclearweapons to Russia in 1992, and the last of its strategic weapons in June 1996, inaccordance with the tripartite agreement. The dismantlement of missile launch-ers and silos, as required by the START-1 disarmament treaty, began in 1996 andis due for completion in 2001. Ukraine’s conventional forces have also shrunk,from 600,000-plus service personnel in 1992, to 335,232, excluding the smallUkrainian navy, on January 1st 1998. This still means that Ukraine has thelargest army in Europe after Russia and Turkey, and the defence minister hassaid that conscription will not be dropped until 2005 at the earliest.

Ukraine: International relations and defence 11


Military forces, 1997

Armed forces 387,400 of which: central staff 83,600 ground forces 161,500 air force 124,400 navy 16,000

Paramilitary 36,000Interior ministry troops 6,000National guard 30,000Source: International Institute for Strategic Studies, The Military Balance, 1997-98.

NATO Conscious of its precarious geo-strategic position, Ukraine has adopted non-aligned status. Initially, Mr Kuchma expressed fears that the planned eastwardexpansion of NATO to include Poland, Hungary and the Czech Republic wouldleave Ukraine squeezed between hostile military blocs, but these were assuagedby NATO’s signature, at its Madrid summit in July 1997, of a “Charter on aDistinctive Partnership between NATO and Ukraine”. This creates a consult-ation mechanism between Ukraine and NATO, though it falls short of Russia’sown privileged relationship with the alliance, forged two months earlier.Ukraine is an enthusiastic participant in NATO’s Partnership for Peace pro-gramme, under which it frequently joins in exercises with NATO troops.However, under the May 1997 friendship treaty Ukraine promised Russia that itwould not join any military blocs for the duration of Russia’s 20-year leaseon Sevastopol, putting an end to speculation that it might apply to joinNATO itself.

The economy

Economic structure

Main economic indicators, 1997

Real GDP growth (% change) –3.2

Unemployment rate (official, % change; year-end) 2.9

Consumer price inflation (% change; year-end) 10.1

Consolidated budget balance (% of GDP) –7.1a

Current-account balance (% of GDP) 0.7b

Exchange rate (av; HRN:$) 1.86

a Including the pension fund. b EIU estimate.

Sources: IMF, International Financial Statistics; Reuters; Ukranian Economic Trends; EIU.

Like much of the former Soviet bloc, Ukraine embarked on independence withan economy built on heavy industries that rely on technology that has largelybeen superseded in the West: steel, chemicals, shipbuilding, coal, machine-tools and weaponry. Diversifying away from these industries has been its mainchallenge since 1991. Much of the industrial sector was already heavily reliant

12 Ukraine: Economic structure


on government subsidy and became even less profitable with the collapse of itstraditional export markets. Ukraine was once known as the “bread-basket ofthe Soviet Union”, and agriculture remains important, although a shortage ofequipment, fertilisers and pesticides means that production is well down onpre-independence levels. The main reason why Ukraine has not made greaterprogress in reversing its post-Soviet economic decline is because of politicalhesitancy in implementing reform.

Official figures put the overall size of the economy in 1997 at HRN92.5bn($49.7bn), roughly the same size as Hungary’s. But research comparing officialGDP figures with changes in consumption of electricity, normally a good indi-cator of true levels of economic activity, suggest that the unofficial economymay be as large again. Ignoring the black economy, GDP per head is $981,significantly less than Russia but also behind Belarus and Kazakhstan. GDP perhead in Poland, Hungary and the Czech Republic is more than three timeshigher than that in Ukraine.

Comparative economic indicators, 1997a

Ukraine Belarus Hungary Poland Romania Russia

GDP ($ bn) 49.69 12.07 44.25 137.27 34.56 462.40

GDP per head ($) 981 1,181 4,358 3,551 1,532 3,146

GDP per head ($ at PPPb) 2,142 4,053 7,403 6,568 4,438 4,249

Consumer price inflation (av; %) 16 66 18 16 155 15

Current-account balance ($ m) 350 –1,145 –988 –4,832 –1,810 3,036

Exports of goods ($ m) 14,431 5,600 16,986 27,106 8,451 87,605

Imports of goods ($ m) 17,128 7,500 21,382 37,721 10,049 70,029

a EIU estimates. b Purchasing power parity.

Source: EIU.

Economic policy

In addition to the problems associated with moving from a planned to a marketeconomy, Ukraine has had to build a whole hierarchy of state institutionsalmost from scratch. This has complicated and confused economic policy-making. Disagreement over the respective constitutional powers of the pres-ident, parliament and bodies such as the national bank has been detrimental toreform, enabling left-wingers in parliament, local government and the indus-trial ministries to block or disable government initiatives. Ukraine does not havemany free-marketeers among its political class—the result of decades of brain-drain to Moscow—and those that there are have never been given the powers of,for example, Anatoly Chubais in Russia or Leszek Balcerowicz in Poland.

During Leonid Kravchuk’s presidency economic policy was hostage to a polit-ical stalemate between left and right. Fiscal and monetary policies were heldvery loose, with the budget deficit rising to 27.1% of GDP in 1992 and 14% in1993. As a result, in late 1993 the economy spiralled into hyperinflation, withthe new national currency, the karbovanets, losing half its value every month.At one point, an enterprising Dnipropetrovsk factory used the currency for themanufacture of lavatory paper.

Ukraine: Economic policy 13


Not surprisingly, Mr Kravchuk lost the presidential election in 1994 toLeonid Kuchma, who campaigned on a platform of economic reform as well asa rapprochement with Russia. In November 1994 the new president signed astand-by arrangement with the IMF, under which Ukraine undertook to limitthe budget deficit to 7.3% of GDP in 1995. Almost immediately a range of pricesubsidies and trade restrictions were abolished, and the president promised toaccelerate privatisation. Despite stalling tactics by the left-wing opposition inparliament, the stabilisation programme has been a success. In 1995 the con-solidated budget deficit was 7.9% of GDP, in 1996 4.6% of GDP, and in 19977.1% of GDP. In addition, the proportion of the deficit financed by credits fromthe National Bank of Ukraine (NBU, the central bank), has fallen from 100% in1993 to zero in 1997. Year-end consumer price inflation dropped from 39.7% in1996 to 10.1% in 1997. The currency has been allowed to depreciate only slowlyin nominal terms, leading to considerable real appreciation. In early 1998 theband within which the currency was allowed to fluctuate was widened toHRN1.8:$1—HRN2.25:$1 to take account of volatility in the aftermath of aninternational crisis of confidence in emerging markets from late 1997.

Privatisation Though Mr Kuchma’s stabilisation programme has been a success, his privatis-ation programme has not. The announcement of ambitious privatisation tar-gets, subsequently allowed to get bogged down in bureaucratic obstructionismand never heard of again, is an established annual ritual in Ukraine. Althoughmost small retail and high street businesses have been handed over to workerco-operatives, privatisation of larger firms has proceeded extremely slowly,with controlling shares in many so-called privatised enterprises staying ingovernment hands. Privatisation revenue has been correspondingly small: byDecember 7th 1997 revenue totalled only HRN165m, or one-third of thatyear’s budget target.

In addition to worker and management buy-outs (the most popular method ofprivatisation in Ukraine) the State Property Fund (SPF) has held, with the helpof the International Finance Corporation, a series of voucher auctions similarto those pioneered by the Czech Republic. Though the public was initiallysceptical about the scheme, because the government was slow in putting upattractive firms for sale, by January 1998 over 90% of Ukrainian citizens hadpicked up their vouchers and half of them had exchanged them for shares. Thisscheme is due to come to an end in June 1998 but may be extended if asignificant proportion of vouchers have yet to be exchanged for shares.

On December 9th 1997 the head of the SPF, Volodymyr Lanovy, announcedthat in 1998, the government would try to sell more companies for cash, andhold international tenders for stakes in Ukraine’s four electricity generators. Theprime minister, Valery Pustovoitenko, has also announced the privatisation ofthe national telecommunications monopoly, Ukrtelekom, in 1998, thoughgiven the need to corporatise, restructure and value the firm prior to sale, this isunlikely to happen before early 1999 at the earliest.

Public finances Although the government more or less succeeded in holding the budget deficitwithin IMF limits throughout 1997, this was partly achieved, as in other ex-Soviet states, by non-payment of current liabilities, in particular, of public-sector

14 Ukraine: Economic policy


wages, benefits and pensions. The result was a dramatic growth in wage andpublic-sector pension arrears in the first half of 1997, leading to widespreadstrikes and protests from Communists and Socialists in parliament. Arrears camedown again slightly in the second half of the year, but at the cost of violationof the IMF’s budget deficit limits in September, October and December. Private-sector wage arrears, meanwhile, have continued to grow. (Historical data ongovernment finances are given in Reference table 1.)

Consolidated budget(HRN m)

1997 plan 1997 outturn 1998 plan

Revenuea 30,259.3 27,148.6 29,761.6 Tax revenue 20,021.1 20,432.3 19,300.3 of which: income tax 3,459.6 3,293.4 3,528.1 profit tax 3,815.8 5,639.2 2,327.9 property tax 140.0 175.3 181.1 VAT 8,456.0 7,602.0 8,756.4 import duties 676.1 703.6 725.3 Non-tax revenue 2,933.7 3,068.3 3,697.4 of which: privatisation 120.0 128.2 1,064.9 Capital revenue 2,757.2 281.7 1141.6 State directed funds 4,527.6 3,366.4 5601.7 of which: Chernobyl fund 2,513.0 1,698.4 2,596.0 Other 19.7 0.0 20.6

Expenditurea 34,336.6 32,075.9 33,142.3 of which: state administration 1,185.2 1,234.5 1,165.6 defence 1,545.4 1,437.8 1,680.7 law enforcement 1,724.6 1,656.7 1,723.1 education 4,214.0 4,958.9 4,225.8 health 3,858.0 3,912.3 3,862.5 social security 3,913.8 3,739.5 3,960.9 housing 1,194.4 1,350.2 1,087.9 industry & energy 2,460.5 1,994.5 2,018.2 of which: restructuring of the coal industry 280.9 233.2 300.0 coal industry subsidy 100.1 850.0 1,000.0 coal & gas price subsidy 635.0 512.0 108.6 Chernobyl victims 2,513.0 1,716.7 2,606.0 national debt servicing 1,786.5 2,951.8 2,885.2 domestic debt servicing 950.4 930.1 2,066.8 foreign debt servicing 836.1b 750.0b 818.4

Budget deficit 4,077.3 4,927.3 3,380.7 % of GDP 4.1 5.3 3.3 Domestic financing 3,351.2c 4,945.9c 1,130.7 External financing 2,400c 1,501.9c 2,250.0

a Excluding the pension fund. b Does not include expenditure on amortisation of foreign debtstock. c Includes amortisation of the foreign debt stock and the financing of the foreign debt stockand the financing of net liabilities from the pension fund.

Source: Ukrainian Economic Trends.

Ukraine: Economic policy 15


To plug its budget deficit in 1997, the government relied chiefly on the unex-pected popularity of Ukrainian Treasury bills, net sales of which raisedHRN3.6bn towards the 1997 budget deficit. Thanks to the stability of thehryvnya, yields on six-month paper fell from 59% at the beginning of the yearto 21% in August. In November, however, the market collapsed in response tothe Asian financial crisis, and the NBU was forced to raise yields again—up to44% on six-month paper—and to issue more short-term notes. The govern-ment was also forced to cancel two planned overseas bonds, although it isforced to seek external financing in 1998 just to meet the HRN7.8bn in T-billredemptions that are falling due, let alone to finance the budget deficit andmake progress on the payment of wage and pension arrears. (Historical data onmoney supply and credit are given in Reference table 2.)

The solution to Ukraine’s perennial budget crisis lies in fiscal reform, andparticularly, in reducing high levels of tax evasion. In late 1996 the governmentlaid out a reform programme aimed at drawing black-market businessmen intothe official economy by lowering tax rates and simplifying Ukraine’scomplicated tax code. Some, but not all, of it has been implemented. On July 1st1997 a new corporate tax came into effect, reducing rates to 30% and taxingenterprise profits rather than revenue. On October 1st it was joined by a newvalue-added tax (VAT) law, which reduces the number of tax exemptions andcharges VAT at a standard 20% rate. New property and personal income taxlaws, however, have yet to be approved by parliament. By the end of November1997 revenue to the consolidated budget was only 76% of plan.

Economic performance

The economy hasremained in recession—

Ukraine has suffered from one of the deepest post-Soviet recessions experi-enced by any of the transition economies not affected by war. According toofficial figures, real GDP has fallen by 62% since independence, though thegrowth of the black economy means that the collapse of real GDP has been lessdrastic. Unlike Russia, whose official GDP grew slightly in 1997, Ukraine’seconomy shrank in 1997, although at a slower rate than in previous years.With the hryvnya relatively stable and inflation under control, further progresschiefly depends on microeconomic reform such as faster privatisation, theintroduction of clear commercial and tax codes, and cuts to the extent ofbureaucratic interference in trade and private enterprise. (Historical data onGDP are given in Reference tables 3 to 5.)

Gross domestic product, 1997(% real change)

Annual average1997 1993-97

GDP –3.2 –12.8Sources: Ukranian Economic Trends; EIU.

Given the depth and length of the recession, it is not surprising that thepopulation has experienced a sharp fall in living standards, and that poverty iswidespread. Worst hit are old people without children, large families andunemployed workers from the smokestack cities of the east, who are less likely

16 Ukraine: Economic performance


than their central and west Ukrainian counterparts to have access to privateplots on which they can grow their own food. Though the poor have beenpartially insulated from recession by the maintenance of subsidies on housingand utilities, these are gradually being phased out, under pressure from theWorld Bank. Amid the widespread poverty, a small section (5-10%) of thepopulation, mostly located in Kiev and other large cities, has prospered, asshown by the ever-increasing number of expensive Western shops and cars.Violent crime, though still nowhere near Russian levels, is on the increase, andlisted as one of Ukrainians’ chief worries in polls.

Unemployment is officially less than 3%, but in reality probably nearer 25%when underemployment is taken into account. In addition, the derisory levelof unemployment benefits gives little incentive to register as unemployed.Workers in near-bankrupt firms often choose to take unpaid leave orwork shorter hours in order to avoid losing access to company housing, clinicsand sanatoria. Together with the antiquated propiska system, under whichUkrainians need permits to move to a new city, this has delayed the creation ofa properly functioning labour market and hindered enterprise restructuring.However, a slow rise in the official unemployment rate may herald a moreintense phase of labour-shedding. For those in work, however, wages are risingfaster than inflation, from monthly average of HRN140 in January 1997 toHRN160 ($85m) in November.

—but inflation hasstabilised

Lowering inflation and stabilising the currency have been the Kuchma govern-ment’s major achievements. Like many former Soviet economies, Ukraine ex-perienced hyper-inflation in the early stages of transition, with prices rising by7,000% in the second half of 1993. Down from 39.7% in 1996 to 10.1% in1997, year-end consumer price inflation is expected to remain at between10-20% as domestic prices continue to adjust to world levels, for examplethrough the further liberalisation of utility and housing costs. (Historical dataon inflation are given in Reference table 6.)

Inflation, 1997(% change, year on year)

Annual-average1997 1993-97

Consumer prices 15.9 444.2

Money supply (M2) 33.9 246.2Sources: Ukrainian Economic Trends; IMF International Financial Statistics; EIU.

Regional trends

In both ethnic and economic terms, Ukraine is broadly split between theRussian-speaking, heavily industrialised east and the Ukrainian-speaking, ruralwest. Though the popular nationalist movement which took the country toindependence originated in the west, since then it has been the eastern prov-inces which have had more influence in policymaking, thanks to their higherpopulation density. It was through the support of voters in the east thatMr Kuchma won the presidential election of 1994; contenders for the nextpresidential election in 1999 will also have to appeal to this constituency.

Ukraine: Regional trends 17


Among the regions that have done best in economic terms since independenceare the Dnipropetrovsk and Zaporizhya oblasts in the east, whose Soviet-inherited steel and chemicals industries have found ready export markets. Theother regions to flourish are Kiev and its environs, the site of most Westernbusiness activity in the country. The old coal-producing regions in theDonbass—the Donetsk and Luhansk regions—have been among the worst hitby the country’s economic collapse, as mines have closed in the face of subsidycuts and cheaper imports. The quality of local government has been critical to aregion’s economic performance: for example, Communist-dominated Crimea,whose tourist resources should have made it one of Ukraine’s more successfulregions, is still grindingly poor, whereas Odessa, which has no manufacturingbase, is enjoying a modest boom under a pro-market city mayor.

Regional development, 1997

Industrial production Agricultural% change, production

% of total year on year % of total

Central regionsChernihiv 1.6 –9.1 4.9Cherkasy 1.9 –3.3 4.7Kiev city 4.6 3.9 0.0Kiev region 3.0 –18.9 6.6Kirovohrad 0.9 –22.0 3.1Poltava 4.6 –7.1 5.3Zhytomyr 1.3 –12.2 4.3

Eastern regionsDnipropetrovsk 16.5 –1.6 5.3Donetsk 20.0 0.3 4.5Kharkiv 6.0 8.1 4.9Luhansk 6.7 3.0 2.8Sumy 2.8 1.3 3.9Zaporizhya 9.0 2.2 3.3

Southern regionsCrimea (incl Sevastopol) 1.8 –24.0 3.5Kherson 0.8 0.9 3.2Mikolayiv 2.5 0.8 2.7Odessa 2.1 –21.3 4.2

Western regionsChernivtsi 0.6 –4.5 1.9Ivano-Frankivsk 2.1 3.2 2.9Khmehnytsky 2.0 4.4 4.7Lviv 3.1 –7.0 4.5Rivne 2.1 –3.6 3.2Ternopil 0.8 –16.5 3.6Vinnytsya 2.2 0.2 6.4Volyn 0.6 2.7 3.1Zakarpattya 0.5 1.2 2.1Source: Ukrainian Economic Trends.

18 Ukraine: Regional trends


Resources

Population

The most striking evidence for Ukraine’s post-independence collapse is the fallin its population. On January 1st 1998 the population stood at 50.5m, downfrom 52.1m five years earlier. The drop reflects the deterioration in economicand social conditions associated with severe economic recession. Healthcare,nursery provision and nutritional standards have all fallen, leading to a reduc-tion in life expectancy—by 1996 down to 62 years for men and 73 years forwomen—and fertility, as well as an increase in infant mortality. (Historical dataon population and the labour force are given in Reference tables 7 and 8.)

Population trends

1990 1996

Population (’000; Jan 1st) 51,584 51,079

Life expectancy at birth (years) Male 65.4 61.6 Female 74.9 72.8Source: UNDP, Ukraine Human Development Report, 1997.

Between 1991 and 1993 the decline in population caused by higher death-than birth-rates was offset by large net immigration from other former Sovietrepublics, in particular, by the arrival of about 250,000 Crimean Tatars, exiledto Central Asia by Stalin (see Historical background). From 1995 onwards thetrend has been towards net emigration, particularly to the US, Canada andIsrael. Ukrainians have also begun to migrate to work as guest-workers in othereast European countries including Russia, Slovakia, Poland and the CzechRepublic, where wages are higher.

Ethnicity Despite its large Russian minority, ethnic relations between Ukrainians andRussians are good, thanks to the cultural closeness, generations of inter-marriage and sensitive handling of the problem by the government. In contrastto the way in which minorities were treated in some of the Baltic states, allnon-Ukrainians were automatically given full citizenship on independence,and were not forced to take language tests to get the vote. As a result Ukraine’sethnic Russians feel more at home in Ukraine than many Russians elsewhere inthe so-called near abroad, and have been remarkably politically quiescent,producing, save in Crimea, no nationalist leaders or political parties.

The mix of smaller minorities has changed since the last census in 1989, withthe emigration of over half Ukraine’s Jews, and the arrival of at least 250,000Crimean Tatars.

Ukraine: Population 19


Ethnic composition of Ukraine, 1989(’000)

Ukrainians 37,400

Russians 11,400

Jews 486

Belarussians 440

Moldovans 325

Bulgarians 234

Poles 219

Hungarians 163

Romanians 135Source: National census.

Education

The two main problems facing Ukraine’s education system are underfundingand a shortage of good teachers and teaching materials in subjects whosecontents were revolutionised by the fall of communism: history, economics,political science and international relations. Education spending is low byinternational standards at 5% of GDP, and has fallen sharply with the eco-nomic recession. Teachers’ salaries are one-third lower than the average inindustry and rarely paid on time; as a result teachers regularly go on strike andmany are quitting the profession. Demands by schools and colleges for privatecontributions are increasingly common: in 1996 one-fifth of all students study-ing in public institutes and universities paid fees, and charges were introducedfor the use of textbooks. Despite this, literacy is still almost universal. Theswitch to Ukrainian-language teaching has taken place on an ad hoc basis,often at the instigation of parents, and in the Russified east and south the vastmajority of schools are still Russian-speaking. Though children throughout thecountry must take a basic Ukrainian-language test to enter university, oncethere many of their books and lectures are still in Russian.

Health

The post-independence years have seen a sharp deterioration in the popul-ation’s health, owing to a drop in real health spending and the social disloca-tions attendant on economic collapse. The incidence of poverty-relateddiseases such as diphtheria, cholera and tuberculosis has increased, as hasalcoholism, suicide and homicide. Nutritional deficiencies have become wide-spread, as Ukrainians cut their consumption of expensive vitamin- andprotein-rich foods in favour of cheaper bread and potatoes. Consumption ofmeat, for example, has fallen by 46% since 1990, fruit by 22%, eggs by 40% andfish by 75%. According to UN research, the energy content of the average diethas fallen from 3,597 kcal in 1990 to 2,640 kcal in 1995.

Ukraine has a high number of hospitals for its population—2,714 in total—butunderfunding has meant that actual healthcare availability has fallen drasti-cally. Doctors commonly supplement their salaries by charging for operationsand maternity care, and drugs are often available only if bought privately. The

20 Ukraine: Education


number of in-patient beds decreased from 130 per 10,000 population in 1990 to109 per 10,000 in 1996. The UN recommends that in order to solve its health-funding crisis the government should introduce mandatory health insurance;no such restructuring of the sector is, however, immediately in prospect.

National resources and the environment

With a land area of 603,700 sq km, Ukraine is comparable in size to France.Some 90% of agricultural land is suitable for arable production. However,although Ukraine has some of the richest soil in the world, yields have fallensharply in recent years owing to shortages of fertilisers and other inputs.Furthermore, large tracts of land in the north of the country were contami-nated by the Chernobyl disaster, and are theoretically unsafe for many types offood production. In practice, government plans to evacuate the area were neverput into effect, and locals continue to live on and work the countryside asbefore. Although the decline in heavy industry has cut levels of air and waterpollution, they remain high by Western standards.

Economic infrastructure

Transport and communications

Rail, road, air andshipping

Ukraine has 23,350 km of railway track, just over one-third of it electrified,247,300 km of roads, only half of them paved, and 14 airports with runwaysmore than 3,000 metres long. It has seven warm-water commercial ports, thelargest of which is Odessa, and 4,400 km of inland waterways.

Telecommunications As elsewhere in the former Soviet bloc, telecommunications infrastructure isunderdeveloped. On January 1st 1997 Ukraine had 18.3 telephone lines per100 people, compared with an average of 50 per 100 people in the West. Digitalswitching stations are now operating in most regional centres, but elsewhereequipment is likely to be up to 30 years old. This may change with the plannedprivatisation of the national telecoms monopoly, Ukrtelekom (see Economicpolicy). Ukrtelekom also controls Ukrainian Mobile Communications (UMC),a joint venture with TeleDanmark, Deutsche Telecom and PTT Nederland.UMC operates an analogue mobile phone network covering all cities and mainroads; in 1997 it launched digital GSM-standard networks in Kiev and Odessa.

Energy provision

Much of Ukraine’s industrial base was built on cheap oil and gas deliveries fromother Soviet republics, in particular, from Russia and Turkmenistan. As theprice of imports has moved towards world market levels, the government hassought to reduce consumption by phasing out energy subsidies. Nevertheless,Ukraine remains a wasteful energy user, consuming twice as much energy perunit of GDP as the EU. This is partly due to endemic non-payment by energy

Ukraine: National resources and the environment 21


consumers, with electricity generators complaining that debts outstandingtotal three months of sales. The situation may improve with the privatisationof Ukraine’s 28 regional distributors, which began in late 1997, and of its fourlarge generating companies, due in 1998.

In addition to lowering consumption, the government aims to diversify energyimports away from Russia, by building new trading ties with the Central Asianrepublics and the Caucasus. However, substantial change in trading patternsawaits the construction of Caspian-to-Black Sea pipelines and a new oil termi-nal an Odessa. (For national energy data, see Reference table 9.)

Energy balance, 1997a

(m tonnes oil equivalent)

Hydro- NuclearOil Gas Coal electricity electricity Other Total

Primary production 4 15 38 2 21 1 81

Imports 12 47 0 0 0 0 59

Exports 1 0 2 0 0 1 4

Primary supply 15 62 36 2 21 0 136

Losses & transfers 4 20 7 0 0 0 58

Transformation output 0 0 0 0 0 0 17

Final consumption 11 42 29 0 0 1 95

a Provisional.

Source: Energy Data Associates.

Chernobyl

The Chernobyl power station, site of the nuclear disaster in 1986, has long been asource of friction between Ukraine and the West. Citing its dependence on nuclearenergy—which in 1996 generated around half the country’s electricity, comparedwith one-third in early 1990s—Ukraine has demanded substantial compensation forclosing Chernobyl, despite the fact that none of its three remaining reactors iscurrently working, and that Ukraine itself would be the greatest casualty were thereto be a further nuclear accident at the plant. Negotiations on the issue have been infitful progress for several years: at a conference in New York in November 1997 theG7 countries renewed an earlier promise to provide $337m towards a ten-yearproject to repair the concrete so-called sarcophagus enclosing the remains ofChernobyl’s exploded fourth reactor. Though Ukraine has promised at an officiallevel to close the station by 2000, government officials hint that this will not happenuntil the G7 comes up with extra money to complete two new reactor-blockselsewhere. Meanwhile, strikes and mechanical breakdowns have become regularoccurrences at all five of Ukraine’s nuclear power stations, thanks to underfunding.

Financial services

A banking sectorshake-out is expected

The banking sector is dominated by five big Soviet-era banks (Prominvestbank,Ukraina, Ukrsotsbank, Eximbank and Oshadbank), in which the state continuesto hold large stakes. In total, Ukraine has 227 registered banks, many of whichwere formed by state-owned enterprises as a means to access cheap credit. Only186 of these are actually operating, however, and extensive rationalisation of

22 Ukraine: Financial services


the sector is expected over the next few years. To hasten this, the National Bankof Ukraine (NBU, the central bank) raised capital requirements for commercialbanks to Ecu1m ($1.3m) from January 1st 1998. Soviet-era accounting practicesmean that capital adequacy figures are meaningless, and the proportion of badloans in the banks’ portfolios hard to gauge: official statistics say they run at19%, anecdotal evidence suggests they could be as high as 40%. From January1st 1998 banks were theoretically obliged to produce accounts according tointernational standards, but in practice the changeover will take some time.(Banking statistics are given in Reference table 10.)

Under the terms of a World Bank structural adjustment loan, Ukraine is com-mitted to passing legislation to reform the banking sector. The reforms includeimproved registration, licensing and bankruptcy procedures for commercialbanks. In addition, the NBU will be guaranteed independence, given strongerpowers to supervise the banking sector and prohibited from providing directbudget finance.

There are a number ofsmall exchanges—

Ukraine has five stock exchanges: the PFTS electronic trading system (modelledon the Nasdaq in the US), the Ukrainian Stock Exchange (USE), the UkrainianInterbank Currency Exchange (UICE), the Kiev International Stock Exchange(KISE) and the Donetsk Stock Exchange (DSE). Trading volumes grew dramati-cally in 1997 thanks to new listings, especially of regional electricity distrib-utors. Turnover on the PFTS, which accounts for 90% of trading outside theinformal “telephone” system, which may be three times as large again, grewfrom HRN3.1m in 1996 to HRN354.9m ($191m) in 1997. The number of shareslisted on the PFTS grew from 100 to 150, but only 89 were actually traded, andof these only 10-15 traded regularly. The stockmarket index soared in the thirdquarter of 1997 but prices were then knocked back following contagion fromthe Asian financial crisis in October and November 1997 but is expected toregain ground towards mid-1998.

Exchange trading volumes, 1997

HRN m % of total

PFTS 354.9 90.0

USE 22.8 5.8

UICE 10.0 2.5

KISE 4.7 1.2

DSE 2.0 0.5

Total 394.4 100.0Source: Eastern Economist.

Ukraine: Financial services 23


Trading in corporate shares by industry on the PFTS, 1997

Trading volume No. of enter- % of total(HRN m) prises traded trading volume

Energy 101.3 9 40.8

Metallurgy 56.0 20 22.5

Chemicals 42.9 7 17.3

Oil & gas 22.7 8 9.2

Engineering 11.4 16 4.6

Pulp & paper 5.1 4 2.0

Food process 3.9 7 1.6

Transport 2.0 1 0.8

Services 1.3 2 0.5

Building 1.0 8 0.4

Finance 0.7 3 0.3

Total 248.4 85 100.0Source: Eastern Economist.

—and a beleagueredgovernment debt market

A debt market has existed in Ukraine only since the beginning of 1995, whenthe government began financing part of the budget deficit through the sale ofTreasury bills. HRN304m of government paper was sold in 1995, rising toHRN3.15bn in 1996 and HRN7.5bn in 1997. Like stocks, T-bills were badly hitby the Asian crash, and in 1998 the government is expected to have difficultyraising enough money on the market to meet redemptions, let alone financethe budget deficit.

Production

Industry

The industrial sectorAnnual average

1997 1993-97

Industrial production (nominal HRN m) 67,183 40,972

Index of real industrial productiona (1990=100) 42.1 50.3

Industrial productiona (% real change) –1.8 –13.5

a Official figures, seasonally adjusted.

Source: Ukranian-European Policy and Legal Advice Centre.

Despite a massivepost-Soviet contraction—

According to government figures, Ukraine’s industrial output declined by57.9% between 1990 and 1997. The Ukrainian-European Policy and LegalAdvice Centre (UEPLAC), an EU-funded agency that collates statistics onUkraine, puts the drop at an even steeper 72.5%. However, as UEPLAC pointsout, this is a poor indicator of economic performance, since many now-defunctindustrial firms actually subtracted value from their inputs, using valuable rawmaterials to produce defective or unwanted goods. Also, the fall in productionis slowing, with a drop in 1997 of only 1.8% according to government figures,

24 Ukraine: Industry


and 2.1% according to UEPLAC. (Historical data on industrial production aregiven in Reference tables 11 and 12.)

The industries worst hit by the post-Soviet collapse were the defence sector,owing to a collapse in defence spending throughout the region, and consumergoods manufacturing, which has suffered from competition from higher-quality imports. Surviving dominant industries are steelmaking, metallurgyand mining. Primary production has increased in importance compared withmanufactures, a reflection of Ukraine’s inability to compete in the highervalue-added sectors. Thus, the share of machine-building in total industrialoutput has declined from 28.6% in 1992 to 9.4% in the first quarter of 1997.Meanwhile, the share of steel production rose from 15% in 1992 to 23.8% inthe first quarter of 1997.

—the defence industriesstill dominate

Ukraine’s defence industry still accounts for around one-quarter of total prod-uction, and a new government agency aimed at increasing defence exports,Ukrspetseksport, has succeeded in winning new contracts overseas. The sectoris, however, hampered by the obsolescence of much of its technology and apoor record of after-sales service and training. Conversion to civilian prod-uction is proving slow and difficult, and foreign investment is lacking.

Mining and semi-processing

Ukraine is the world’s fifth-largest producer of iron ore and has the world’ssecond-largest reserves of magnesium, but its most important mineral resourceis the Donbass coal basin, home to 60% of the coal reserves of the former SovietUnion. Though it still makes up 12% of Ukraine’s industrial production, thecoal-mining industry is in long-term decline, with output falling from a peak of218.2m tonnes in 1976 to 70.3m tonnes in 1996. Reserves are estimated at45bn tonnes, but seams are deep, and many older mines lack the necessaryresources to exploit the coal. The industry has been badly hit by cuts in sub-sidies and non-payment for output: wage arrears are high, strikes frequent and200-400 miners die in pit disasters each year. The government accepts thatmine closures are necessary, but has been slow in implementing a World Bank-funded restructuring programme.

Ukraine also has several underexploited oil- and gasfields. The country pro-duced only 4.1m tonnes (82,000 barrels/day) of oil and 18.4bn cu metres of gasin 1996, but the State Geology Committee claims reserves of 1.3bn tonnes ofoil and 6.4trn cu metres of natural gas, as well as 400m tonnes of condensate.Although the size of the deposits has attracted the interest of firms such asBritish Petroleum, investors are put off by the lack of a stable regulatory regimecovering the sector, and consequent high levels of corruption.

Ukraine: Mining and semi-processing 25


Agriculture

Agricultural productionAnnual average

1997 1993-97

% real change, year on year –1.85 –0.1Sources: State Statistics Committee, displayed in Ukranian Economic Trends; EIU calculations.

Ukraine was once known as the “bread basket of the Soviet Union”, because ofits fertile chernozem (black soil). Since the Soviet Union’s collapse, however, thevalue of Ukraine’s agricultural production has plummeted, from $44.1bn in1990 to $19.3bn in 1997. Agriculture made up 21% of the country’s total GDPin 1992, but only 12% of GDP in 1996. To blame are loss of export markets,shortages of fuel, lack of new equipment and fertilisers, and the Ukrainiangovernment’s slowness in privatising land and in dismantling its Soviet-inherited systems of procurement, processing and distribution, which actuallyreduce incentives for collective farms. By far the most efficient sector of

Free-market reform in the agricultural sector

Under the terms of a $300m World Bank structural adjustment loan, half of whichhad been disbursed by the start of 1998, Ukraine is due to implement agriculturalreforms in three main areas:

• Privatisation. In Ukraine, as in Russia, land privatisation is political anathema.Collective farm bosses, bedrock of the left-wing political class, fear the loss of theirfiefdoms; collective workers know that any land division is likely to be unfair, andfear losing their livelihoods. Though farmers are entitled to withdraw shares ofland from their collectives and set up “individual farms” they cannot buy or sellthe land thus withdrawn, and the procedure has proved unpopular. The WorldBank wants to see withdrawal procedures simplified and land sales legalised, butprogress is likely to be slow given opposition in parliament.

• Competitive purchasing. Under the Soviet system, collective farms wereobliged by a state procurement contract to sell much of their output to thegovernment at a centrally determined price, receiving fuel, fertiliser and otherinputs in return. The system is still partly in place today, although it now onlycovers grain and government prices match world market ones. Under the WorldBank’s programme, the system would be completely abolished, with thegovernment sourcing all grain via open, competitive markets, and the privatesector taking over the supply of farm inputs. In December 1997 the governmentpassed a resolution on competitive purchasing that was due to be implemented inmid-1998.

• Demonopolisation. Freed from state procurement contracts, farms are stillprey to local monopsonies in food processing, storage and distribution. Previously,all such enterprises came under the control of a single regional association; in1996 and 1997 they were broken up by the Anti-Monopoly Committee, thoughsome have since effectively re-formed. In practice, however, farmers still havedifficulty finding more than one buyer to do business with, since many processingenterprises have simply stopped operating. The planned privatisation of over 400grain elevators may improve matters.

26 Ukraine: Agriculture


Ukraine’s agricultural economy is its 11m privately held garden plots. Account-ing for only 14% of total agricultural land, they produce 45% of overall agricul-tural output, and even higher percentages of vegetables, meat, milk and eggs.(Historical data on agriculture are given in Reference tables 13 to 15.)

Construction

The construction sector has been badly affected by the collapse in investmentthroughout the economy, in particular by budget cuts which have broughtstate-funded capital projects to a standstill. The informal sector, however, isbooming, with self-built dachas (country cottages), often of idiosyncratic de-sign, becoming a common sight in city suburbs.

The external sector

Merchandise trade

Foreign trade, Jan-Sep 1997($ m)

Main exports (fob)Ferrous & other non-precious metals 4,388Chemicals 1,128Mineral products 955Machinery 944Food products 533Total incl others 10,349

Main imports (cif)Mineral products 5,938Machinery 1,950Chemicals 886Transport goods 649Plastic goods 534Total incl others 12,530Source: State Statistics Committee, published in Ukrainian Economic Trends.

Ukraine’s trade balance is dominated by its reliance on fuel and energy importsfrom other former Soviet republics, particularly Russia. Imports of mineralproducts, which include oil and gas, accounted for nearly half the total importbill in the first three quarters of 1997. Payment for energy imports has been aconstant problem, and disputes with suppliers have on occasion led to thesuspension of deliveries. Together with the rise of Russian fuel prices to worldlevels, the reliance on energy imports has meant large and growing merchan-dise trade deficits for Ukraine, despite falling energy consumption. Themerchandise trade deficit grew from $2.7bn in 1995 to $4.3bn in 1996. In 1997the total volume of trade was reduced following a tit-for-tat trade war withRussia which reduced the absolute value of the trade deficit that year, but it isexpected to rise in 1998 and beyond. Unlike other some other countries in theregion, Ukraine still conducts most of its trade with Russia, which accountedfor 39% of total exports and 48% of imports in 1996. This means that Ukraine’s

Ukraine: Construction 27


large merchandise trade deficit with the former Soviet republics more thanoffsets the small trade surplus with other countries. (Historical data on foreigntrade are given in Reference tables 16 to 18.)

Ukraine’s export markets have been badly hit by the decline in purchasingpower throughout the region as the post-Soviet recession took hold. Althoughsome of Ukraine’s traditional trading partners are now beginning to pull out ofrecession, the collapse of the Council for Mutual Economic Assistance (Comecon)has meant that Ukrainian producers are finding it increasingly difficult to com-pete with better quality products from western Europe, North America and Asia,and are unlikely to recapture their traditional markets soon. As a result, theemphasis in Ukraine’s export mix is shifting from machinery and other finishedgoods towards primary and semi-finished products such as steel, fertiliser, ironore and chemicals.

Main trading partners, Jan-Nov 1997(% of total)

Exports to (fob): Value Imports from (cif): Value

Russia 26.2 Russia 46.7China 8.0 Germany 7.4Belarus 5.8 Turkmenistan 5.1Turkey 4.5 US 4.0Germany 3.9 Poland 3.2Italy 2.7 Kazakhstan 2.4Poland 2.6 Belarus 2.4Taiwan 2.3 Italy 2.3Source: State Statistics Committee, published in Eastern Economist.

Invisibles and the current account

The large deficit on Ukraine’s merchandise trade account is partly offset by alarge surplus on invisibles, itself a result of the transit fees Ukraine levies onRussian gas and oil exports to western Europe. In its annual negotiations withRussian energy suppliers, Ukraine has attempted to insulate itself from fuelprice rises by upping its transit fees too: this has not, however, improved thestate of Ukraine’s current account, which showed deficits of $1.15bn in 1995and $1.19bn in 1996. In 1997 the EIU estimates that the current-accountdeficit narrowed to around $960m as a result of a reduced trade deficit arisingfrom a trade war with Russia and the temporary suspension of energy importsfrom Turkmenistan. Both these factors have, however, proved temporary andwe expect the current-account deficit to continue widening in 1998. (Balance-of-payments data are given in Reference table 19.)

28 Ukraine: Invisibles and the current account


Current account, Jan-Sep 1997($ m unless otherwise indicated)

Goods: exports 11,276

Goods: imports –14,548

Trade balancea –3,272

Net services 2,021

Net income & transfers 381

Current-account balance –870 % of GDP –2.5

a Trade data differ slightly from State Statistics Committee, which relies on customs statistics.

Source: National Bank of Ukraine, published in Ukrainian Economic Trends.

Capital flows and foreign debt

Foreign debt In December 1994 Russia agreed to assume liability for all the Soviet debtallocated to Ukraine after the dissolution of the Soviet Union (equivalent to$10bn-10.5bn), in return for Ukraine’s share of all former Soviet assets. Sincethen, Ukraine’s gross foreign debt stock has risen from zero to $9.3bn at theend of the third quarter of 1997, according to National Bank of Ukraine (NBU,the central bank) figures. At 18% of GDP, this is fairly low by internationalstandards, but Ukraine faces tough interest and repayment liabilities in 1998-99. (Historical data on external debt are given in Reference table 20.)

Although Ukraine is increasingly turning to the international capital markets,its chief overseas creditors remain Russia, to which it owes payments for fuelimports, and the IMF. Under the terms of the Russian-Ukrainian friendshiptreaty, signed in May 1997, Russia will write off $2.5bn-3bn of Ukrainianenergy debts in exchange for a 20-year lease on the naval base of Sevastopol.This leaves $1.4bn of energy debts outstanding, which have been convertedinto long-term bonds, owed to the Russian state-owned gas monopoly,Gazprom.

Ukraine’s stand-by loan from the IMF, under which it receives $50m permonth if it keeps the budget deficit within prescribed limits, is due to come toan end in August 1998. The next stage is to move to a three-year IMF extendedfund facility worth $2.5bn-3bn although when this was last on the table inmid-1997 it was withdrawn following the failure of parliament to make suffi-cient progress on reform. The EU is in the process of approving a thirdEcu150m ($170m) balance-of-payments loan, also tied to IMF conditions.

Ukraine has attracted little foreign direct investment (FDI) since independence,which at around $2bn in total is less than half as much as the Czech Republicor Hungary, whose populations are both one-fifth of its size. To blame areUkraine’s fluid and contradictory regulatory and legal regimes, and high levelsof corruption. In 1997 net portfolio investment, although still low, becamemore significant in 1997 accounting for $1.37bn in the period from January toSeptember compared with net FDI inflows of $344m, according to NBU figures.Interest in both portfolio and direct investment may pick up with the plannedprivatisation of utilities such as electricity generators and Ukrtelekom, but

Ukraine: Capital flows and foreign debt 29


investors will remain wary while parliament and president continue to feudover control of the State Property Fund (see Economic policy).

Foreign reserves and the exchange rate

Foreign reserves On December 3rd 1997, according to the NBU chairman, Ukraine had around$2.4bn in gross currency reserves with import cover (average monthly reservesas a percentage of exports of goods and services) of about 1.7 months. Al-though this represents a continuing improvement in import cover, it remainswell below the three-month level considered comfortable for defending thecurrency in a crisis. However, multilateral loans (see Capital flows and foreigndebt) should prevent import cover from falling further. (Historical data onforeign reserves are given in Reference table 21.)

The exchange rate Introduced in September 1996, the hryvnya replaced the hyper-inflationarykarbovanets or “coupon”, and has proved reasonably stable thanks to tightermonetary policies. Initially, the government tried to hold the hryvnya’s valueat HRN1.76:$1, but was forced to allow a nominal depreciation to aroundHRN1.89:$1 by the end of 1996. In April 1997 the government announced anexchange-rate corridor of HRN1.7-1.9:$1, which held until late November,when ripples from the Asian crash knocked the hryvnya down to HRN2:$1 firston the Moscow then on the Kiev markets but recovered some of the lost groundwhen the NBU responded by raising interest rates and intervening on thecurrency markets to support the hyrvyna. On January 21st the NBU announceda new corridor of HRN1.8-2.25:$1, to apply the whole of 1998. Given that thehryvyna started 1998 at HRN1.9:$1, should it reach the bottom of this newcurrency band by the end of the year this will be equivalent to a nominaldepreciation of just over 18% in 1998. The relative stability of the hrynyna innominal terms since its introduction has lead to considerable real currencyappreciation. A number of studies indicate, however, that this has not lead to aloss of export competitiveness, although we do expect the Ukranian authoritiesto now allow the currency to depreciate at the same rate as inflation, so as tokeep a broadly constant real rate of exchange. (Historical data on exchangerates are given in Reference table 21.)

Exchange rates, Dec(HRN:$1; period averages)

1995 1996 1997

Officiala 1.795 1.884 1.895

Non-commercial interbank exchange rateb 1.835 1.877 1.895

Ukrainian Interbank Currency Exchangec 1.795 1.885 1.895

a Set by the NBU. b A market dealing mainly with cash transactions. c Determined by auction.

Sources: Ukranian Economic Trends; NBU; Kalina (Kiev) Ltd.

30 Ukraine: Foreign reserves and the exchange rate


Appendices

Sources of information

National statistical sources Although a range of government ministries, alongside the National Bank ofUkraine, produce their own statistical bulletins and reports, these are difficultto obtain. Officials view information as a commodity and tend to limit itscirculation. The most comprehensive and up-to-date review of available data isUkrainian Economic Trends, published by the Ukrainian-European Policy andLegal Advice Centre (Kiev), with funding from the EU’s TACIS programme.Reliable information can also be obtained from Eastern Economist, a weeklyKiev-based English-language magazine published by Matlid publications.

International statisticalsources

The IMF, World Bank, the OECD and the European Bank for Reconstructionand Development (EBRD) are the main international providers of statistics onthe Ukrainian economy.

EBRD, Transition Report

IMF, International Financial Statistics

OECD, Short-Term Economic Indicators, Transition Economies

World Bank, World Tables; Trends in Developing Economies; Global DevelopmentFinance; Statistical Handbook: States of the Former USSR

Select bibliography Tor Bukkvoll, Ukraine and European Security, The Royal Institute of InternationalAffairs, London, 1997

Peter K Cornelius and Patrick Lenain (eds), Ukraine: Accelerating the Transition toMarket, IMF, Washington, 1997

Paul Magocsi, A History of Ukraine, University of Toronto Press, 1996

Heiko Pleines, Energy in Ukraine, Financial Times Energy, 1998

Anna Reid, Borderland: A Journey through the History of Ukraine, Weidenfeld &Nicolson, 1997

Reference tables

Reference table 1

Consolidated government budget(HRN m unless otherwise indicated)

1993 1994 1995 1996 1997a

Revenue 568.3 5,313.8 20,425.4 30,142.1 36,889.6

Expenditure 661.0 6,453.5 24,443.0 33,759.0 43,086.0

Balance –92.8 –1,139.7 –4,017.6 –3,617.0 –6,196.4 % of GDP –6.5 –10.5 –7.9 –4.6 –7.1

a From 1997 the pension fund has been excluded from official budget figures, but for purposes ofcomparability these figures have been adjusted to include it.

Source: Ukrainian-European Policy and Legal Advice Centre, Ukrainian Economic Trends.

Ukraine: Sources of information 31


Reference table 2

Money supply and credit(HRN m; end-period)

1993 1994 1995 1996 1997

Total NBU credit 225 1,349 4,644 6,469 7,496a

Monetary baseb 282 1,606 3,540 4,882 7,058

M2c 481 3,216 6,846 9,024 11,550a

a End-November. b The monetary base includes currency in circulation, commercial bank reservesand cash in vaults. c M2 includes currency in circulation, demand deposits and time deposits.

Source: Ukrainian Economic Trends.

Reference table 3

Gross domestic product1993 1994 1995 1996 1997

TotalAt current prices (HRN m) 1,483 12,038 54,516 80,510 92,484Real GDP index (1990=100) 70.6 54.4 47.8 43.0 41.6Real change (%) –14.2 –22.9 –12.2 –10.0 –3.2

Per headAt current prices (HRN ’000) 28 232 1,056 1,576 1,826At constant prices (1990 Rb m) 1,925 1,162 1,083 1,029 1,033Real change (%) –26.9 –39.7 –6.7 –5.0 0.4Sources: State Statistics Committee; Ukranian-European Policy and Legal Advice Centre (Kiev); EIU.

Reference table 4

Gross domestic product by expenditure(HRN bn; current prices)

1993 1994 1995 1996

Private consumption 0.84 7.07 37.19 55.98

Government consumption 0.11 1.09 4.46 8.06

Gross fixed investment 0.36 2.86 12.76 16.83

Stockbuilding 0.17 1.39 1.80 1.54

Exports of goods & services 0.38 4.26 25.66 36.65

Imports of goods & services –0.39 –4.64 –17.34 –38.55

GDP 1.48 12.04 54.52a 80.51

a Total does not sum in source.

Source: IMF, International Financial Statistics.

32 Ukraine: Reference tables


Reference table 5

Gross domestic product by sector(% of GDP; current prices)

1992 1993 1994 1995a

Industry 44.6 29.7 35.0 34.4

Agriculture & forestry 20.8 21.5 14.6 13.6

Construction 7.6 6.9 7.4 9.3

Transport & communications 8.0 11.3 7.3 0.0

Trade & catering 4.9 7.6 5.1 4.8

Others 14.1 23.0 30.6 37.9

Total 100.0 100.0 100.0 100.0

a Most recent consistent data available.

Source: World Bank, Statistical Handbook: States of the Former USSR.

Reference table 6

Prices and earnings1993 1994 1995 1996 1997

Consumer price index (1990=1) 1,696 16,809 80,137 144,432 167,376 % change, year on year 5,371 891 377 80.2 15.8

Wholesale price indexa (1990=1) 2,622 32,365 190,579 289,798 312,171 % change, year on year 4,467 1,134 489 52 7.7

Average nominal wage (HRN/month) 1.70 15.32 80.58 137.81 156.20 % change, year on year 2,329 801 426 71 13.3

Real wage index (1990=100) 36.8 33.5 36.9 35.0 34.2 % change, year on year –56.0 –9.0 10.1 –5.1 –2.3

Average dollar wage ($/month) n/a 24.7 49.6 76.1 83.5

a Including imports.

Sources: State Statistics Committee, published in Ukrainian Economic Trends; EIU calculations.

Reference table 7

Population(’000; Jan 1st)

1992 1993 1994 1995 1996

Total 52,057 51,989 51,860 51,474 51,079 % change 0.22 –0.13 –0.25 –0.74 –0.77

Male 24,167 24,119 24,073 23,905 23,726 % change 0.34 –0.20 –0.19 –0.70 –0.75

Female 27,890 27,870 27,786 27,568 27,353 % change 0.11 –0.07 –0.30 –0.78 –0.78

Urban 32,297a 35,180 35,110 34,828 34,542 % change –7.95 8.93 –0.20 –0.80 –0.82

Rural 16,760a 16,809 16,749 16,646 16,537 % change –0.59 0.29 –0.36 –0.61 –0.65

a Total does not sum in source.

Sources: UNDP, Ukraine Human Development Report, 1997; EIU calculations.

Ukraine: Reference tables 33


Reference table 8

Labour force(bn people)

1992 1993 1994 1995 1996

Total 24.5 23.9 23.0 23.7 23.2

Agriculture 4.9 4.9 4.8 5.3 5.1 % of total 20.0 20.5 20.9 22.3 22.0

Industry 7.4 7.0 6.3 5.8 5.3 % of total 30.2 29.3 27.4 24.5 22.8

Services 12.2 12.0 11.9 12.6 12.9 % of total 49.8 50.2 51.7 53.2 55.6 of which: construction 1.9 1.8 1.6 1.5 1.4 transport & communications 1.6 1.6 1.5 1.5 1.4 trade 1.8 1.7 1.6 1.6 1.6 healthcare 1.5 1.5 1.5 1.5 1.5 education & culture 2.8 2.7 2.7 2.6 2.5 management 0.6 0.6 0.7 0.7 0.8Source: UNDP, Ukraine Human Development Report, 1997.

Reference table 9

National energy statistics1993 1994 1995 1996 1997a

Natural gas production (bn cu metres) 19.2 18.2 18.2 18.2 18.0

Gas transit through Ukraineb

(bn cu metres) 125 129 136 117 126

Coal production (m tonnes) 116 94 84 72 82

Electricity generation (bn kwh) 230 202 194 181 175

Electricity consumption (bn kwh) 227 197 191 178 170

Crude oil production (m tonnes) 3.8 3.8 4.0 4.1 4.2

Petroleum product productionPetrol 3,249 3,952 2,757 2,546 2,200 Kerosene 305 186 4 0 1 Diesel fuel 5,930 4,950 4,020 3,626 3,500 Fuel oil 10,297 8,081 6,588 5,082 4,200 Liquid gas 149 135 104 92 110 Bitumen 446 422 339 207 200 Oils 258 203 181 147 61

a Estimates. b Typically from Russia to Western markets.

Sources: State Statistics Committee; Infobank; Petroleum Economist, published in Energy in Ukraine by Heiko Pleines.



Reference table 10

Banking statistics(HRN m unless otherwise indicated; year-end)

1993 1994 1995 1996 1997

Reserves 182.4 762.9 960.3 848.6 925.5

Foreign assets 159.5 1,465.3 1,873.4 1,779.7 1,829.0

Claims on general government 17.1 n/a 207.6 774.5 1,815.4

Claims on public enterprises 389.5 1,426.7 3.662.8 4,932.0 5,549.0

Claims on private sector 20.9 556.5 804.2 1,128.2 2,259.1

No. of registered banks 211 228 230 229 227

No. of new registrations 84 28 3 10 8

No. of bank liquidations 6 11 1 11 10Sources: World Bank; IMF, International Financial Statistics.

Reference table 11

Industrial production(1990=100)

1993 1994 1995 1996 1997

Total (seasonally adjusted) 79.4 51.1 45.2 42.9 42.1 % change, year on year –8.5 –35.5 –11.7 –5.1 –1.8Source: Ukrainian Economic Trends.

Reference table 12

Sectoral origin of industrial production(% of total at world market prices)

1993 1994 1995 1996 1997

Power 9.8 12.7 14.4 15.9 15.8

Oil & gas 7.7 9.1 10.4 10.8 10.7

Coal 8.3 10.2 10.3 10.1 11.5

Steel 14.5 15.6 18.3 21.9 25.1

Machine-building 27.7 18.9 14.1 9.9 9.0

Food-processing 14.4 17.1 17.4 17.0 13.6

Others 17.6 16.3 15.2 14.3 14.2Source: Ukrainian Economic Trends.



Reference table 13

Agricultural production(’000 tonnes unless otherwise indicated)

1992 1993 1994 1995 1996

All grains 38,537 45,623 35,497 33,930 24,571 of which: wheat 19,507 21,831 13,857 16,273 13,547 barley 10,106 13,550 14,509 9,633 5,726 rye 1,158 1,180 942 1,208 1,094 oats 1,246 1,479 1,385 1,116 731 maize 2,851 3,786 1,539 3,392 1,837

Sugarbeet 28,783 33,717 28,138 29,650 23,009

Sunflowers 2,127 2,075 1,569 2,860 2,123

Fibre flax 105 73 49 48 18

Potatoes 20,277 21,009 16,102 14,729 18,410

Vegetables 5,310 6,055 5,142 5,880 5,070

Meat (carcass weight) 3,401 2,815 2,677 2,294 2,092

Milk 19,114 18,377 18,138 17,274 15,926

Eggs (m) 13,496 11,794 10,154 9,404 8,782

Wool 23 21 19 14 9Source: OECD, Agricultural Policies in Transition Economies.

Reference table 14

Livestock statistics(as at Jan 1st; ’000 head)

1993 1994 1995 1996 1997

All cattle 22,457 21,607 19,624 17,557 15,611 of which: cows 8,057 8,078 7,818 7,531 7,144

Pigs 16,175 15,298 13,946 13,144 12,257

Sheep & goats 7,237 6,863 5,575 4,099 3,033

Poultry 214,582 190,481 164,864 149,748 130,574Source: OECD, Agricultural Policies in Transition Economies.

Reference table 15

Private agricultural production(% of total by volume unless otherwise indicated)

1992 1993 1994 1995 1996

Potatoes 85 85 92 96 95

Vegetables (excl potatoes) 52 56 65 73 82

Meat 35 41 44 52 57

Milk 32 36 40 45 52

Eggs 45 48 54 56 59

Total private production (% of total agricultural production, by price) 26 27 30 32 49Sources: OECD Agricultural Policies in Transition Economies, 1997; Ukrainian Economic Trends.



Reference table 16

Exports($ m; fob)

1994 1995 1996 1997a

Live animals 434 615 588 335

Plant products 201 349 856 348

Animal & vegetable fats 125 164 182 64

Food products 977 1,444 1,386 533

Mineral products 852 920 1,278 955

Chemicals 1,105 1,630 1,674 1,128

Plastic goods 247 344 377 267

Skins, hides etc 99 138 115 105

Wood & wood products 18 43 55 44

Paper & paper products 63 87 136 101

Textiles 308 374 375 332

Shoes, hats & umbrellas 56 59 69 45

Products of stone, cement & asbestos 160 140 170 99

Ferrous & non-ferrous metals 3,875 4,114 4,540 4,388

Machinery 1,266 1,269 1,379 944

Transport goods 899 686 622 374

Equipment 59 61 61 46

Total incl others 11,085 17,553 14,062 10,349

a January-September.

Source: State Statistics Committee, published in Ukrainian Economic Trends.



Reference table 17

Imports($ m; fob)

1994 1995 1996 1997a

Live animals 104 157 305 150

Plant products 174 226 243 128

Animal & vegetable fats 22 0 37 28

Food products 288 762 823 362

Mineral products 2,234 4,014 9,542 5,938

Chemicals 671 825 989 886

Plastic goods 347 600 759 534

Skins, hides etc 44 47 185 38

Wood & wood products 129 103 123 65

Paper & paper products 181 327 389 291

Textiles 464 511 492 346

Shoes, hats & umbrellas 82.2 68 69 40

Products of stone, cement & asbestos 74 125 155 151

Ferrous & non-ferrous metals 909 611 741 471

Machinery 1,886 2,025 2,425 1,950

Transport goods 618 549 554 649

Equipment 174 192 216 171

Total incl others 8,624 17,413 18,203 12,530

a January-September.

Source: State Statistics Committee, published in Ukrainian Economic Trends.

Reference table 18

Main trading partners(% of total)

1994 1995 1996 1997a

Exports (fob) to:Former Soviet Union 56.3 54.4 56.9 41.7 Non-former Soviet Union 43.7 45.6 43.1 58.3 of which: EU 9.3 12.6 10.9 12.1 China 5.1 3.3 5.4 8.0 Germany 2.0 4.0 2.9 3.9 US 3.5 4.8 2.5 2.5 UK 0.8 2.0 0.8 0.7 Switzerland 3.2 2.2 0.4 0.5

Imports (cif) from:Former Soviet Union 69.3 65.2 65.1 57.2 Non-former Soviet Union 30.7 34.8 34.9 42.7 of which: EU 13.1 16.8 14.1 13.7 Germany 7.3 5.2 6.4 7.4 US 2.3 2.8 2.8 4.0 Poland 1.4 2.0 3.5 3.2 UK 0.7 2.8 1.2 0.9 Switzerland 3.2 2.5 0.5 0.8

a EIU estimate, based on January-November 1997 data.

Sources: Ukrainian Economic Trends; EIU.



Reference table 19

Balance of payments, IMF estimates1994 1995 1996

Goods: exports fob 13,894 14,244 15,547

Goods: imports fob –16,469 –16,946 –19,843

Trade balance –2,575 –2,702 –4,296

Services: credit 2,747 2,846 4,799

Services: debit –1,538 –1,334 –1,625

Services balance 1,209 1,512 3,174

Income: credit 56 247 102

Income: debit –400 –681 –675

Income balance –344 –434 –573

Current transfers: credit 583 557 619

Current transfers: debit –36 –85 –110

Current transfers balance 547 472 509

Current-account balance –1,163 –1,152 –1,186

Direct investment in Ukraine 159 267 521

Direct investment abroad –8 –10 5

Portfolio investment inflows 0 16 199

Portfolio investment outflows 0 –12 –1

Change in other investment assets –3,026 –1,574 –821

Change in other investment liabilities 2,318 787 414

Financial balance –557 –526 317

Capital account nie credit 106 6 5

Capital account nie debit –9 0 0

Capital account nie balance 97 6 5

Net errors & omissions 423 48 261

Changes in reserves & related items 1,200 1,624 603 (– indicates an increase) Reserve assets –549 –469 –894 Use of IMF credit & loans 368 1,221 776 Exceptional Financing 1,380 871 721Source IMF, International Financial Statistics.



Reference table 20

External debt($ m unless otherwise indicated; debt stocks as at year-end)

1992 1993 1994 1995 1996a

Public medium- & long-term debt 454 3,540 4,612 6,585 7,655

Private medium- & long-term debt 4 12 45 84 97

Total medium- & long term debt 458 3,552 4,657 6,669 7,752 Official creditors 95 2,922 3,758 4,322 5,024 Multilateral 59 139 225 619 720 Bilateral 36 2,784 3,533 3,702 4,304 Commercial creditors 363 630 899 2,347 2,728

IMF 0 0 364 1,542 2,318

Short-term debt 93 161 417 223 68

Debt per head ($) 11 71 105 163 198

Total debt stock 551 3,713 5,438 8,434 10,138

Ratios (%)Debt/GDP n/a 11.3 14.8 22.8 23.0 Debt/exports of goods & services 4.8 27.5 32.6 48.6 49.6 Interest paid/GDP 1.1 0.2 0.2 1.4 1.6 Interest/exports of goods & services 0.1 0.5 0.5 2.9 3.4 Debt service paid/exports of goods & services 0.1 1.5 1.8 5.3 7.2 Debt service paid/GDP n/a 0.6 0.8 2.5 3.4

a EIU estimates.

Sources: World Bank, Global Development Finance; EIU.

Reference table 21

Foreign reserves($ m unless otherwise indicated; end-period)

1993 1994 1995 1996 1997

International reserves excl gold 161.6 650.7 1,050.6 1,941.3 2,326.9

SDRs 0.0 180.6 144.3 67.2 71.1

Foreign exchange 161.6 470.1 906.3 1,874.1 2,255.8

Gold (national valuation) 4.4 13.7 18.3 30.4 31.9

Memorandum itemImport cover (months) 0.1 0.4 0.7 1.1 1.7Sources: IMF, International Financial Statistics; EIU.

Reference table 21

Exchange rates(HRN per unit of currency unless otherwise indicated; annual averages)

1993 1994 1995 1996 1997

$ 0.4530 0.3275 1.4731 1.8295 1.8617

Rb ’000 0.4567 0.1495 0.3231 0.3573 0.3218

DM 0.2740 0.2018 1.0279 1.2158 1.0736Sources: IMF, International Financial Statistics; EIU.

Editor:All queries:

Kitty UssherTel: (44.171) 830 1007 Fax: (44.171) 830 1023



Ukraine - iuj.ac.jp › mlic › EIU › Profile › Ukraine › 1998_Main_report… · Ukraine...

Documents

Transcript of Ukraine - iuj.ac.jp › mlic › EIU › Profile › Ukraine › 1998_Main_report… · Ukraine...