Saturday, October 25, 2008

Meltdown, crisis, bubble burst, or collapse – are these the signs of a world going into a financial recession or even something more serious: like your 2 year-old or your teenager acting out? Here in Ukraine we don’t really see kids acting out but we do see the politicians acting out, and this is coupled with the signs of a dreaded financial meltdown.

The political and financial crises are feeding off each other. The President has tried to dissolve parliament and declare national elections for December 7, now postponed to December 14. The Prime Minister says we don’t need an election, we need to deal with the financial crisis and negotiate a 15 billion dollar loan from the International Monetary Fund. Apparently contingent on getting a loan will be a series of unpopular downsizing measures, and the Opposition Leader does not want to be seen supporting this. The people want bread, borscht and calorie-rich sour cream. No elections and no cuts. If having three parties in a marriage doesn’t work, can we expect anything better in politics?

But at least the Rada (Parliament) is entertaining. The Prime Minisister's people are most creative in preventing a vote to hold elections. They have literally blockaded the Presidium so that Parliament cannot convene. Now the Speaker’s office has accused this bloc of sabotaging the Rada electronic voting system by jamming small articles like tin foil, coins, and paper clips into the computer network's hardware. Apparently computer hard drives can only take a limit of 64 MB of paper clips.

The tragedy is that the people seem to be forgotten in the discussion. As politicians squeeze kopeks into hard drives, this is what is really happening:
--foreign investors are pulling their money out of Ukraine. Ukraine 's credit rating has dropped to B+.
--the price of steel is dropping. A major steel plant in Zaporozhye has gone to "1/2 shifts" because of reduced demand. Workers are being laid off.
--the price of metal is dropping. One of our staff has been selling metal, left over from his late uncle's property. He told Ben that in a little over two weeks the price dropped from 90 kopeks per kilogram to 70 kopeks per kilogram, and now it is down to 40 kopeks per kilogram.
--exports have recently fallen by 40%.
--the government has imposed a freeze on withdrawing money from savings accounts. A mother told Ben she can't take any money out of her savings account and she fears that when she will be allowed to, the money will be worthless. A repeat, many fear, of 1991. Someone else said he used to have an ATM withdrawal limit of 2000 UAH, now it is 200 UAH.
--people are trying to convert their grievnas into US dollars. This has impacted us because we are limited to a daily withdrawal of 50% of our previous withdrawals. We suspect there just aren't enough $$ to go around.
--last week Ben saw a queue of empty car-carrier trucks at least 3 kilometers in length, lined up along the car assembly plants in Zaparozhye. Because of higher interest rates and less credit, consumers are not buying cars.
--the price of gas has gone down somewhat, and is around 5.80 UAH/litre, $1.23 Canadian. Very much on par with what we pay in Canada—however, a reasonable wage is still around $200/month.
--a large part of Ukraine’s recent boom was fueled by foreign credit. Now in large cities high rise cranes have stopped working. Building construction has stalled.
--inflation, which currently is the highest in all of Europe, is predicted to go be over 25% for 2008. Inflation really hurts the fixed income pensioners. --The President has called for the laying off of every 5th bureaucrat. No doubt many will now be hesitant to line up and take a number for anything. Clearly, this global tsunami keeps sending shock waves around the world.

Ukrainians are an extremely resilient people. They have been through much worse. What they want is stability, predictability, and some reason to believe that members of the Rada are acting for the good of the country. It would sure help if they started behaving like Ukrainian children.

We know that many of us are also significantly affected by these events. Your contributions, big and small, are appreciated all the more.

Ben and Linda.


At 11:10 AM , Blogger Cessna421 said...

Please keep us posted how the economy is going. I heard the average wage in Ukraine is now $500 a month. Is that wrong?

At 7:48 AM , Blogger Dr Purva Pius said...

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