Crisis: How Much Must One Nation Suffer?

Crisis: How Much Must One Nation Suffer? -KIEV, Ukraine -- As the aftershocks of the global financial crisis start reverberating throughout the nation, Ukraine’s leaders were, for a second week, holding talks with the International Monetary Fund on a multi-billion-dollar emergency loan.
The leadership also struggled to adopt measures to protect the country’s economy amid political chaos and sharply sliding exports of key commodities, such as steel.The concerns for all Ukrainians, especially the poorest, could mount soon. The government will be forced to take belt-tightening measures in exchange for IMF help, increasing hardships for the poorest citizens. Meanwhile, an inflation rate that could hit an annual rate of 25 percent continues to erode everyone’s purchasing power.Speaking on television early Oct. 22, Prime Minister Yulia Tymoshenko warned that the government might reduce the state bureaucracy by 20 percent and freeze social social benefits, such as pensions, which are now indexed for inflation. “Ukraine has to tame its social appetites … we have to cut spending that Ukraine cannot afford,” Tymoshenko said.She insisted that nobody would experience cuts, but pensioners – many of whom make only $100 per month – will feel the most pain.As the week wore on, a faint silver lining emerged: President Victor Yushchenko and Tymoshenko appeared to finally start coming to an agreement about what needs to be done to save the economy.Tymoshenko earlier this month downplayed the world financial crisis’ affect on Ukraine. But in recent days, she has talked about emergency measures needed to minimize the expected big blow. The country’s export-oriented economy is sure to suffer.Tymoshenko assured citizens that the IMF was ready to provide an emergency loan to stabilize the country’s sliding currency and shaky banks, but offered no clarity as to how much funding would be provided and under what conditions.Reports suggest the IMF may provide a credit line of up to $15 billion.Yushchenko on Oct. 22 revealed that the nation’s central bank had this month burned through nearly $3 billion in reserves, leaving it with $34.6 billion. And some experts, such as economist Anders Aslund, suggested Ukraine needed “some $20 billion.”One day earlier, the president called for the creation of a rainy-day fund that could be used to bail out banks in times of need. He also said that measures should be taken to increase state insurance guarantees on bank deposits.Yushchenko halted his decree calling for early Dec. 7 parliamentary elections so that the Verkhovna Rada could adopt emergency laws. According to the president, the aim is to “prevent a recession from turning into a depression.”Yet the country’s lawmakers spent the first several days of the week feuding. It remained uncertain whether they would be able to come to a consensus on anti-crisis legislation and the divisive issue of when, or if, snap parliamentary elections would be held.Tymoshenko said that her government submitted economy-related draft laws to parliament and expressed hope that lawmakers would adopt them in the coming days. “The first is about protecting [Ukraine] from the world financial crisis; the second is on changes to the 2008 state budget,” she said.Changes in the budget are needed to finance early elections that Tymoshenko opposes as reckless in times of economic crisis. Experts said she also fears losing her job.But Yushchenko has not backed down on his call for a snap election. In a televised address on Oct. 20, the president said the elections would be held Dec. 14. He later admitted that they could be delayed further. But lawmakers loyal to the president and one of his other rivals, Victor Yanukovych, could muster enough votes to fund an early poll.“There are enough votes for that in the session hall anyway,” said Ivan Kyrylenko, faction leader for Tymoshenko’s bloc in parliament.So, as the country’s currency was under pressure and sliding, politicians focused on blaming each other for the economic crisis in an attempt to curry favor with voters.Experts said the hryvnia, which hit an all-time low of 5.9 against the dollar on Oct. 8, will inevitably depreciate further, as the value of foreign currency swelled due to a widening current account deficit.Experts said an IMF loan will free up reserves, allowing the central bank to walk the fine line between keeping the currency stable and bringing inflation under control.A recent IMF report predicted that Ukraine will continue having the highest inflation rate in Europe this year and next, 25 and 19 percent, respectively.And inflation is what Ukrainians fear most. A majority of Ukrainians expect to see prices rise significantly as a result of the world financial crisis or think that the crisis will not affect them at all, according to a telephone poll commissioned by Korrespondent.net, a sister internet publication of the Kyiv Post.According to the poll, nearly 50 percent expect a jump in inflation, 21 percent expect nothing, while 8 percent predict the complete collapse of Ukraine’s economy. Only 4 percent fear for their jobs, but the poll’s error margin is 5 percent because it only included 426 respondents.The poll found that older respondents are more concerned with inflation than their younger counterparts.Economist Ihor Burakovsky said the rate of inflation will depend on the extent of the domestic and world crises. But, he added, the cost for heavily-subsidized utilities will have to grow anyway, hitting the pocketbooks of the country’s pensioners.“Depending on the trajectory of the recession, the government will have to keep a close eye on the pension fund. Measures like indexing pensions to inflation make sense, but if the situation is very dire, then other measures will take priority,” he said.Economist Victor Lysytskyi, who has served at Ukraine’s central bank and in government, said the country can, if needed, offer support to the country’s most vulnerable households. “Ukraine currently has the opportunity to prevent the impoverishment of the most needy,” he said, without offering specifics.Ultimately, however, snap parliamentary elections will complicate the efforts of politicians to adopt constructive measures, he warned. “We can avoid a crisis if we say ‘no’ to elections and ensure the parliament and government function normally,” Lysytskyi said.