Business in Ukraine

Following the breakup of the Soviet Union, Ukraine declared independence in 1991. The construction of the new Ukrainian state was anything but simple. The separation of Ukraine out of the integrated Soviet economy posed considerable problems. Politically too, the development of a democratic form of government with the creation of political parties and the development of an independent judiciary were major challenges. Unfortunately in Ukraine, unlike in Poland, there was no complete break with the past. Essentially the same people with many of the same institutions which had governed Ukraine as part of the Soviet Union, headed the new independent state. The 1990s therefore became largely a lost decade for Ukraine, in which there was a major decline in real GDP, an increase in poverty and during which the seeds of crony capitalism were sown.

Poland was the first state to recognize Ukrainian independence and, in spite of the history of complex relations between the two countries, became a major sponsor of Ukraine in the West. However in the 1990s Poland and the other states of central and eastern Europe were concentrating on their preparation for integration with the European Union and had little time or inclination to deviate from this course, until the accession treaty was signed in 2002.

For the European Union too, policy during the 1990s was essentially absorbed with the creation of a Monetary Union and with the preparation for the fifth enlargement of the Union. Following the breakup of the Soviet Union, Eastern Europe had disintegrated into chaos, but a chaos which did not directly threaten the European Union. The EU’s response therefore to the challenges posed by state-making in the East was rather weak.

Economically the 1990s were a disastrous period for Ukraine. At the time of the 1998 economic crisis Ukraine’s economy was only approximately 40% of the size it had been in 1990. While these statistics may be somewhat dubious, it is clear that the economy contracted severely during this period. As one of the key industrial regions of the former Soviet Union with a considerable share of its heavy industry, Ukraine was particularly hard hit both by the break-up of the Soviet Union and by the closure of a considerable proportion of its industry. Although it recovered from the 10,000% inflation in 1993, the economy did not start growing again until the year 2000.

The basis for economic recovery was set partly by the policies which were adopted as a result of the 1998 financial crisis. Ukraine’s new currency, the hyrvnia introduced in 1996, was devalued, tighter fiscal policy was introduced and an economic reform programme, under Prime Minister Yushchenko, was put in place from 2000. Recovery was also fostered by an improvement in Ukraine’s terms of trade, with international prices for metal products rising strongly. However the period between the financial crisis and the Orange Revolution was also marked by the blooming of the insider economy fostered by President Kuchma.

Tags: Politics //