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Tuesday, December 23, 2008

As The Politicians Battle It Out Ukraine's Economy Tunnels South In Search Of Australia



“In Ukraine, the evidence is still that policymakers do not quite understand the seriousness of the challenges they face,”. Timothy Ash, analyst at the Royal Bank of Scotland.

“There is a burgeoning economic crisis in the European periphery,” Krugman said on the ABC network Dec. 14. “The money has dried up. That’s the new center, the center of this crisis has moved from the U.S. housing market to the European periphery.”

Make no mistake about it. What is taking place right now in Ukraine is extraordinarily serious. The IMF have recently agreed a support loan to the country, but the politicians themselves still can't agree on whether or not they are actually going to abide by the conditions attached to it. Meantime, as we can all see on our TV screens, tensions with Russia continue to escalate, fuelled by the conflict-ridden negotiations over Ukraine's gas debt.

And just to add to the nighmare, Ukrain's economy made a dramatic entry into recession in Q4 2008. In fact, so severe has been the slowdown that nobody at this point can even muster enthusiasm for opening up one of those interminable discussions about whether or not what the country is going through really counts as a "technical recession" (in terms of two successive quarters of GDP contraction) or not, since the drop in national output has been enormous, and it it fairly obvious that isn't about to come bouncing back up again. At least not for the next several quarters it isn't, and - to give us an early glimpse of the terrain onto which we are now entering - the World Bank have just forecast a 4% contraction in GDP for 2009.

In a year when you would think little would surprise us the sharp change in real Ukraine GDP dynamics has been astonsihingly swift, with the growth rate moving from the 11% year on year expansion registered in August to the 14% year on year contraction reported in November (according to data put together by the World Bank). GDP for the whole January-November period is now down to 3.6% when compared with the equivalent months in 2007, and this is reall a sharp drop, since the average over the first nine months of the year was a growth rate of 6.9%. For his part the office of Ukraine President Viktor Yushchenko is suggesting that gross domestic product may contract at an annual rate of between 7 percent and 10 percent in the first quarter of next year, and by 5 percent over the whole year, according to Oleksandr Shlapak, deputy chief of staff to the president.


The contraction has been led by sharp falls in manufacturing and construction, while the financial system has been in serious trouble since late September, and the loss of UAH deposits from the banking system has amounted to 14% during October and November. But the real problems Ukraine is facing in confronting this most serious economic crisis, lieas in the political sphere, and the complete lack of the kind of political consensus which is so necessary to see through the measures which can it to an end.

Political Chaos Adds To The Problems

Ukraine’s government - which is laways a chaotic process at the best of times - is once more having a serious identity crisis about who it is and what it wants to do, with one of the exectutive's two visible hydra's heads (Prime Minister Yulia Timoshenko) seeking to respond by manipulating the currency downwards, by boosting social expenditure to an extent which will push next year’s budget deficit up to 2.96 percent of gross domestic product (from an agreed 1.4%) and well beyond the IMF pact level, and by attempting to resolve the trade deficit problem by imposing an administrative tax on imports. The other head of the hydra (President Viktor Yushchenko) is busy opposing all these moves on the grounds that they may jeopardize the second tranche of a $16.4 billion loan from the International Monetary Fund, and obviously, were this to be the case, the country would basically find itself bankrupt, and at the mercy of whatever sentiments the global financial markets wish to express when it comes to Ukraine.

Of course regular readers of this blog will not be surprised to find that this politically split personality crisis goes right into the heart of the central bank (see my Monetary Chaos Breaks Out At the Ukraine Central Bank post) and no one will be really that surprised to find that the two key characters in this round of the saga are (yet one more time, read the linked post, its all explained there) National Bank of Ukraine Governor (and board chairman) Volodymyr Stelmakh’s and Petro Poroshenko head of the central bank council.

Well things are really hotting up at the moment, with Viktor Yushchenko this week threatening to fire some central bank employees (presumeably those who were not implementing the decision to allow the Hryvnia to float), while Yulia Timoshenko was busy demanding the dismissal of National Bank Volodymyr Stelmakh himself - presumeably because he was trying to stop further currency intervention. In an official statement the central bank council responded by accusing Timoshenko of stirring up “chaos” and undermining the nation’s banking system, while Timoshenko, for her part has now taken the matter to the Ukrainian parliament (the Verkhovna Rada - where she may well carry a majority) which will now hold a full debate the role of the central bank next week. It seems not to matter too much here that the bank council is simply trying trying to implement a set of policies which were agreed to (or everyone thought they were agreed to) as part of the IMF loan agreement.

“A hryvnia level above 9 per dollar is unacceptable, it threatens the economy and banking system,” Petro Poroshenko, the head of the central bank council said. “The situation with the hryvnia rate demands urgent measures.”

Volodymyr Stelmakh, Central Bank Governor, the Yulia Tymoshenko Bloc is proposing his immediate arrest.

(Interfax-Ukraine) - Yulia Tymoshenko Bloc has proposed that, based on results of a report by an ad hoc parliamentary commission scrutinizing the National Bank of Ukraine's activities, an address should be sent to the Prosecutor General's Office and that National Bank Chairman Volodymyr Stelmakh should be arrested. "I think that, based on the report's findings, there will surely be an address to the Prosecutor General's Office of Ukraine and other law enforcement agencies, which, by the way, are already conducting inquiries," Volodymyr Pylypenko of the Yulia Tymoshenko Bloc said in an interview with Interfax on Wednesday. "The best gift in this situation can only be an order on taking [National Bank of Ukraine Chairman Stelmakh] into custody for all wrongdoings the National Bank has committed in the past months," Pylypenko said.

President Yushchenko did express the hope last Tuesday that Ukraine's currency market might be moving rightside up, with the hryvnia trading at about 7.8-8.0 to the dollar and level of "stabilising" dollar purchases by the central bankdeclining, but Prime Minister Tymoshenko remained unconvinced that this was a desireable level, and demanded more concerted intervention to move the currency up to a much higher level - around the 6-6.5 to the $ mark. She gave Yushchenko a week-and-a-half apparently, since otherwise she stated the country would face increasing problems with inflation, and in the banking and other sectors. It is not clear (at least to me) why these problems (which are, and will continue to be, serious) should suddenly deteriorate within the time scale of ten days, but presumeably there was another, more political, message behind this choice of words.

Adding to the confusion, Ukraine's parliament, has decided to impose an additional 13% temporary duty on all imported goods - and this despite the fact that Ukraine only recently entered the WTO. A total of 269 MPs from the ruling coalition and the Communist Party voted for the relevant law which amended existing Ukranian lefislation - with, it was said, the aim of improving the state of Ukraine's balance of payments. "Duties have been increased on all imported goods, apart from a [so-called] 'critical' [list of goods]," the head of the parliament's committee for tax and customs policies, Serhiy Teriokhin, is quoted as saying.
"I'm alarmed by the report of my legal department on parliament's decision to impose an additional temporary duty on all imported goods. Parliament's decision puts Ukraine's presence in international programs in jeopardy," President Yushchenko said at a press conference yesterday. "Similar decisions by Russia and Europe might be made against us in three days,".

IMF Taking Large Political Risk

Last month, a point in time which now seems so distant it feels like eternity, Ukraine received approval for a two-year IMF loan intended to help support its banking system and cover the country’s widening current-account gap during what was always seen as being a difficult adjustment process. Under the terms of its agreement with the IMF, Ukraine is expected to have a balanced budget next year. If the Cabinet fails to meet the target, then the Fund may withhold the second tranche of the loan, according to press statements by Balazs Horvath, IMF representative in Kiev. Ukraine received the first installment of $4.5 billion last month, and is due to get the second tranche in February. Obviously the IMF is by now well accustomed to playing the part of the "bad boy" in this type of situation, but what if the country they are trying to deal with should simply "implode", right in its face, I'm not sure even the hardened hand of the IMF are ready for this. So let's just hope I'm exaggerating, and that it won't happen (fingers tightly crossed everyone, please).



Discrepant GDP Forecasts

So Ukraine faces a crisis on three fronts, financial, economic and political. On the real economy side, the Ukraine cabinet currently expects growth in the country’s economy to slow to 0.4 percent next year, compared with a final rate which turn out to be somewhere between 1.8 percent and 2.5 percent this year. As I say the World Bank now expects a 4% contraction in GDP next year, and thus a 0.4% expansion in the budget is potentially a very serious problem indeed for the deficit, if the economy underperforms, as it surely will.

“The draft budget, prepared by the Cabinet, is not realistic,” Yushchenko said today in a statement on his Web site. “The 2009 budget is a tragedy; it is the most irresponsible document worked out by the government. Professionals should plan a realistic budget, not optimistic.”
The government plans to cover the budget deficit by selling bonds in domestic and foreign markets, and is to receive a $500 million loan from the World Bank to cover the budget deficit. Under the terms of the IMF agreement with the Inernational Monetary Fund Ukraine has pledged to keep its 2009 budget deficit under 1 percent of gross domestic product, below the 2 percent initially planned by the government. In October, the government reduced its planned 2008 budget revenue from the sale of state assets to 401 million hryvnia ($59.4 million) from 8.6 billion hryvnia, citing the unfavourability of the moment for selling.



Pressure On The Hryvnia


The Hyrvnia has been falling for a number of weeks, but the rate of decline has really accelerated in the last ten days, and we are really now talking about one of those famous currency crises. The national currency has fallen 50 percent against the dollar since June, and according to Michael Ganske, head of emerging markets in London for Commerzbank, it may well drop another 24 percent in the next few weeks given market sentiment and that the International Monetary Fund package effectively limits central bank intervention to halt the slide. The terms of the IMF $16.4 billion bailout package, agreed to last month, require Ukraine to move toward a flexible exchange rate and place a maximum limit of 4 percent for any reserves reduction during the remainder of 2008 (from the base of around $32.8 billion). Thus while the agreement does allow intervention to stem “disorderly” swings, it places a tight limit on what this means. And this now is just the problem, although before we jump to our guns, we should bear in mind that what is provoking the fall is not the IMF and the bailout, but confidence in the ability of the political system to implement a workable recovery plan. Trying to run a currency corridor, and accepting the inflation that went with it, is how we got here in the first place.

The only real remedy Ukraine’s central bank has at its disposal at this point is to raise its base refinancing rate, and this it duly did last week, taking it up from 18 percent to 22 percent in an attempt to arrest the hryvnia’s decline To give us some idea where we are at this point, at the start of 2008 the dollar bought 5.04 hryvnia, while right now it can purchase around 8.25 hryvnia.



The central bank is currently offering to sell dollars at 8.0 hryvnias and to buy them at 7.8788 on the interbank market. Yushchenko told a news conference last week that the central bank had bought $270 million on Monday and Tuesday, but had been required to sell only $30 million on Tuesday. He informed the assembled journalists, however, that complete stabilisation would need to wait until after the debts for Russian gas and other expenditures had been paid (you should be able to start to smell just how complicated all this is by this point, just who exactly is batting for who here?). "Until debts are paid for gas, and settling the debts of (the national road network) Ukravtodor, it would be madness to talk about steps aimed at a fundamental, professional stabilisation". "Everything is earmarked", he claimed, "$3 billion (for intervention from reserves), more than $2 billion set aside for gas arrears, $1 billion for repayment of a loan to Ukravtodorom, $200 million to (rocket maker) Yuzhmazh, leaves only an additional $400 million to defend the hryvnia."


As a result of the $7.5 billion the Ukraine central bank spent supporting the hryvnia in October and November foreign reserves fell to $32.7 billion as of Nov. 30. At the same time the hryvnia has declined 21 percent against the dollar over the last month alone . Under the terms of the agreement with the IMF, the reserves should not fall below $31.4 billion by the end of this year, so we are talking about a very close call on this front too.



Equities Down And Credit Default Swaps Up

Ukraine’s stocks have also been falling, and the benchmark PFTS stock index is down 74 percent this year, the third-steepest decline among the 22 so-called frontier markets tracked by MSCI Barra. Mariupolsky Metallurgical Plant, Ukraine’s largest steel company by revenue, has fallen 92 percent on the Kiev stock market. On the other hand the extra yield investors demand to own Ukrainian government bonds instead of U.S. Treasuries has increased more than nine times this year to 25.86 percentage points, according to JPMorgan Chase’s EMBI+ indexes, which compares with an average three-fold increase in the main emerging-market index to 7.09 percentage points.


Loan Defaults Coming


And as the currency slides, so too does the ability of the average Ukrainian to pay his or her debts. Another Yushchenko aide, Roman Zhukovskyi, recently estimated that up to 60 percent of foreign-currency loans and mortgages could default given the extent of the decline. Ukraine, which has around $105 billion in corporate and state debt, has the fourth-highest credit risk worldwide, according to credit-default swap data. The cost of insuring Ukraine bonds against default is up more than thirteenfold this year, to an astonishing 31 percent of the amount of debt protected. This puts the country behind only Ecuador, which defaulted last week (59 percent), Argentina, which defaulted on $95 billion in bonds in 2001 (46 percent), and Venezuala ( 33) percent, according to the data from CMA Datavision.

Ukrainian companies need to repay as much as $4.1 billion this month while lenders refuse to refinance debt, according to Dmitry Gourov, an economist at UniCredit in Vienna (oh, no, not Unicredit again, see this post). Dollar denominated loans made up 53 percent of credit issued by Ukrainian banks as of 30 September, according to central bank data.

Thus, with just over half of all bank loans denominated in US dollars, they obviously become vastly more expensive for borrowers who are paid in the national currency.

Aggressive lending by banks that borrowed heavily from abroad has obviously contributed to Ukraine’s ballooning private sector external debt (currently estimated at $85 billion). Official figures indicate that only some 2.5 percent of loans are currently problematic, but this situation is obviously about to worsen considerably next year as the currency is down and the economy contracting.

Earlier this month, Finance Minister Victor Pynzenyk called on banks to refinance loans amid a weakening hryvnia and rising interest rates. Some banks in recent days said they would seek compromises with clients, rather than hike interest rates further. Pynzenyk’s proposal called on the NBU to amend its rules to allow borrowers either partially or in whole to pay back loans in the national currency at the exchange rate which was operative when the loan agreement was signed. The banks, in turn, would be allowed to lower their capital/asset ratios and write off their losses, thus paying lower taxes, which would also require amendments to the tax legislation. Obviously some such solution will need to be found for this problem. (There has already been some move in this direction in Hungary, another of the countries which is strongly affected by the forex loans problem).

Other measures under consideration at the present time include extending loan periods, and the temporary reductions in loan payment installments. If the hryvnia-dollar exchange rate further widens, mass loan defaults are inevitable, according to Yuriy Belinsky, head analyst at Astrum Investment Management. At the current Hr 8 to the $1 rate, “40 percent won’t be able to pay their loans,” Belinsky told Korrespondent, a Russian-language Ukraine newspaper.

And the situation is deteriorating fast, a quick visit to the foreclosure sections on the websites of banks like Finance and Credit Bank or Alfa will turn up plenty of property and cars already listed for sale or soon to be auctioned. But given the slump in the real estate market and falling house prices it isn't clear that banks will find it any too easy unloading any property they do repossess. We are back to the "you owe them a little money and you have a problem, and you owe them a lot of money and they have a problem" situation. Last weekend, the NBU also recommended that banks lower interest rates on foreign-currency denominated loans, but the problem is going to be, as ever, who is actually going to fund these measures?

Industrial Output Plummets

Meantime in the world of the real economy things simply get worse and worse. Industrial production shrank by a record 28.6 percent in November as steel, machine building and oil refining slumped, after a 19.8 percent decline in October.



And as output falls, prices come tumbling behind. Steel production dropped 48.8 percent in November, while the price of the benckmark European hot rolled coil has fallen 47 percent since August and is now at around $425 a metric ton, according to data from U.K. industry publication Metal Bulletin.

World Bank Forecast

The World Bank have predicted a sharp recession for Ukraine in 2009, with GDP being expected to fall by some 4.0 percent. This compares with their July forecast of 4.5 percent growth. The Bank also cut back its forecast for 2008 growth to 2.3 percent from a previously forecast 6.0 percent. It raised its inflation forecast for this year to 22.8 percent from 21.5 percent previously predicted, up from 16.6 percent in 2007. It cut its forecast for inflation next year to 13.6 percent from 15.3 percent.

(please click on image for better viewing)



The Bank take the view that the Ukraine government - in agreeing to the terms of the IMF loan package - have initiated an important programme of macroeconomic adjustment measures, but (with a wary eye on what is actually going on in the Parliament) stress that consistent implementation is essential to avoid a further erosion of market confidence. In their latest report the Bank highlight the shift towards a flexible exchange rate policy, financial sector stabilisation measures , and a more conservative fiscal policy, but as we have seen, these are just the measures which seem to be being challenged by some of the political participants .


So What Does The Future Look Like?

Obviously Ukraine is heading into a major recession in 2009 fuelled by the nasty cocktail of a credit crunch, a terms of trade deterioration, and a consequent massive slowdown in both internal and export demand. Given the damage to competitiveness caused by two years of double digit inflation, macroeconomic stabilization will require a very large and significant correction, and this will mean a significant tightening of aggregate demand and a shift in its composition away from domestic consumption and towards net exports. The government debt stock is currently low at 10 percent of GDP, and will undoubtedly remain sustainable throughout and after the adjustment, even allowing for the potential costs of bank recapitalization. But the ability of the Ukraine administration to carry out the necessary adjustment hinges critically on the willingness of external creditors to refinance the banking and corporate sector debts, and this willingness in its turn depends on the perception those creditors have of the level of political coherence and stability the country has. And as we are seeing such perceptions must be reasonably near an all time low at the present time.

But even with the best political system in the world, the economic correction facing Ukraine is going to be large and the stresses enormous. The World Bank more or less spell this out in the paragraph I extract below. A 200% contraction in real imports (ie not due to cheaper energy prices or something) is massive, and we are talking about a basically balanced budget (ie very little fiscal stimulus) and monetary policy where interest rates are at the current giddy heights of 22%.

The basic macroeconomic parameters in our forecast are broadly consistent with those of the IMF program. Balance of payments pressures will lead the economy to adjust the composition of growth through 2009. As a result, the current account deficit is expected to improve from over 6 percent of GDP in 2008 to 1-2 percent of GDP in 2009-11. To achieve this adjustment, an over 20 percent real import contraction will be needed in 2009 in order to counter the 7 percent forecast terms of trade deterioration. Real wages and employment are forecast to decline in 2009 to restore price competitiveness of Ukrainian exports in the wake of declining export prices and to support the adjustment in aggregate demand. With this current account adjustment and with the support of the IMF Stand-By, the external financing gap would be closed under our baseline assumptions. Declining commodity prices, tightening liquidity and the forecast decline in domestic demand will contribute to disinflation. However, offsetting this, the exchange rate correction and the adjustment of energy and utilities tariffs will make disinflation a more prolonged process. We assume that the government will maintain a balanced budget in 2009 (not accounting for bank recapitalization costs) and have a small deficit thereafter.



So I think we need to be very clear at this point. The Ukraine position is very difficult, and everything is very delicate. The danger of total financial meltdown (which would be in this case in the private banking sector, not sovereign debt) is real and significant. The economic downturn has only just started and further downside risks are large and depend critically on the size of external shocks and the limitations imposed by inadequate policy responses.

Any further deterioration in the terms of trade (unlikely at this point given how far steel prices have already fallen, but these prices may stay lower for longer than many in the sector can sustain) or further decline in export demand would certainly put almost unsustainable pressure on the real sector. Banking sector vulnerabilities may be further exacerbated by further overshooting of the exchange rate and external debt refinancing difficulties as corporate balance sheets weaken further and household incomes come under strain from rising debt service costs.

Prudent fiscal, monetary, and financial policies (many of them anchored in the program supported by the IMF), accompanied with renewed efforts to deepen structural reforms, can help Ukraine to stabilize its situation and move the economy towards recovery. Conversely, a continuation of the current disorderly response and poor implementation of the agrred policies may easily trigger further financial chaos leading to an even shaper downturn and a postponement of any recovery off into the distant sunset.

But Beyond The Recovery, What About The Demography?

One of the reasons why I think the IMF and the World Bank are taking such a big risk with their credibility in Eastern Europe at the moment, is that I don't think they are getting through to the heart of the problem. One way of thinking about this is to take Paul Krugman's favourite Keynes quote - "we've got magneto trouble" - and ask ourselves whether all we have before us in the CEE countires right now are magneto problems, or whether, to continue with the metaphor, we may not have issues with the cylinder head gasket. And it gets worse, because the cylinder head gasket does seem to have blown (and it will keep blowing) because we have leakage problems in the sump, and the main oil pump isn't working - and who knows, maybe the crankshaft even needs replacing. As they always tell you when you take the car into a garage for "fixing", we won't know till we take the thing apart. What do I mean?

Well take a look at the chart showing the relative size of annual births and deaths in Ukraine over the last twenty years.



I mean to the normal and untrained eye stands the problem stands out a mile, population dynamics went underwater in the Ukraine in the early 1990s, and they aren't coming back to the surface again (not now, not in thirty years, not...... well maybe never is too much of a long time, but certainly not over a time horizon which is going to make any essential difference to anyone who is already alive today.)

And this is without taking any outward labour migration into account, so just think about the negative labour market dynamics that this implies, and already has implied. Can anyone really be surprised that Ukraine has been suffering from acute inflation as its number one problem?

To some extent it is worth stressing here that what really matters is the actual numbers of annual live births, rather than any more complex measure of fertility. In 1989 for example there were nearly 700,000 children born in Ukraine. By 1998 this number was near to 400,000 (ie there was a drop of 40% or so in a decade). In practical terms (and if we take 18 as an average age for labour market entry in a country like Ukraine) next year there are potentially 650,000 people to enter the labour force, but by 2016 this number will be only 400,000. So it isn't simply a question of pushing the fertility rate up towards the replacement rate (a difficult, but not impossible task), we also need to think about what economists term the "base effect" here, that is that with each passing year and cohort you have less and less women in the childbearing ages, so even if those women replace themselves, the base of the pyramid is still much narrower than the top, and it is the people at the top who need caring for and financing.

And even if some of this loss can be offset at the workforce level by increasing labour force participation at the older ages, we would still be talking about a very sharp rise in the average age of the workforce. And productivity improvement alone cannot possibly hope to compensate for the kind of labour force contraction we should reasonably expect, at least not over such a short period of time it can't. So this is just one more reason why, against all expectation, fertility really does matter.


While many continue to believe that falling populations don't actually have any tangible impact on economic performance, it is very striking to notice that when it comes to ageing and declining populations we really lack ANY evidence to substantiate that claim in the affirmative. On the other hand we do have plenty of evidence from countries where the population is either falling or gathering negative momentum to suggest that these countries face some very special kinds of economic problems. The example of Eastern Europe is clear enough I would have thought, but people really do need to take a closer look at what has been happening in recent years in countries like Japan, Germany, Italy and Portugal. And if falling population does produce its own kind of economic problems, well then we should be expecting to see plenty of them in Ukraine, since as we can see in the chart below Ukraine's population peaked in 1993, and has been in some sort of free-fall ever since.

Evidently there are a number of factors which lie behind this dramatic decline in the Ukrainian population, fertility is just one of these (with poor health and net emigration being the others). Ukraine fertility is currently in the 1.1 to 1.2 Tfr range, and, as we can see in the chart below, it actually dropped below the 2.1 replacement level back in the 1980s.




Another major influence on demographic dynamics is health, and one good measure of this is the level of life expectancy, which in the Ukraine case has shown a most preoccupying evolution, since it has been falling rather than rising. The chart below shows life expectancy at birth for both men and women, the male life expectancy is evidently significantly below the combined figure.




This life expectancy situation is, as well as being preoccupying, highly unusual (it is however paralleled to some extent in Russia itself, and some other CIS countries). Apart from the obvious, the deteriorating health outlook which this data reflect places considerable constraints on the ability of a society like Ukraine to increase labour force participation rates in the older age groups, and this is a big problem since this is normally though to be one of the princple ways of compensating for a shortage of people in the younger age groups.

So what about the future? Well, two issues are really starting to worry me at present, the first of these is the short term fertility shock Ukraine will undoubtedly receive on the back of the current crisis. If young people were already rather reluctant to have children, then then will now almost certainly be much more so, given the downward pressure on living standards we are about to see.

The second worry concerns the future of the country itself. A recent study carried out jointly by the Kiev based Democratic Initiatives Foundation and Nova Doba History and Social Sciences Teachers Association found that while more than 93 percent of the Ukrainian seventeen year olds they inteviewed considered themselves Ukraine citizens, only 45 percent said they planned to live and work only in Ukraine, citing Western Europe, Russia and the United States as possible future destinations. When 55% of your potential future labour force are thinking of working elsewhere you have a problem, and one which needs a solution. Simply putting a strip of band-aid over a festering wound won't work, I'm afraid, however much the Ukrainian people may struggle and sacrifice. With or without Keynes, we've got more than magneto problems on our hands here.

Postcript


A much fuller analysis of the problems presented by Ukraine's long term population implosion (including the issue of out-migration patterns and trends) can be found in this post here.



26 comments:

AP said...

Any comment on the significant (indeed, enormous) regional differences within Ukraine in terms of birth rate, life expectancy, health rate etc. and how this may impact Ukraine's economy in the future? One of Ukraine's western provinces, Volyn, recently registered a birthrate (13/1,000 people) higher than that of any European country other than Albania. Indeed, several western Ukrainian provinces experienced more births than deaths in the last quarter of 2008. According to a recent aticle about births in Ukraine from a Ukrainian government ministry Donetsk oblast, with 4.6 million people, saw 10,500 children being born in the first quarter of the year. Lviv oblast, the most populous in Western Ukraine with population 2.5million, had 6,500 births. Doing the math, this comes to birth rates of 9.13/1000 people for Donetsk (extrapolated for the year) and 10.4 /1,000 for Lviv. This places Lviv below Volyn with its 13/1,000 but above EU's 2007 average of 9.97. Keep in mind, unlike the EU Lviv has virtually no Muslim or African foreigners pumping up the birth rate, so the actual birth rate of EU Europeans is probably lower.

Basically, demographically it is as if there were two countries, not one, and therefore just considering the average doesn't tell us much.

regards,

AP

AP said...

More presice figures, from a referenced wikipedia article:

http://en.wikipedia.org/wiki/Demographics_of_Ukraine#Regional_Differences_in_Demographics

"Regional differences in birth rates may account for some of the demographic differences. In the third quarter of 2007, for instance, the highest birth rate among Ukrainian regions occurred in Volyn Oblast, with a birth rate of 13.4/1,000 people, compared to the Ukrainian country-wide average of 9.6/1,000 people,[6] which is the lowest in Europe. Volyn's birthrate is higher than the birth rate in any European country with the exceptions of Iceland and Albania.[7] In 2007, for the first time since 1990, five Ukrainian regions (Zakarpattia Oblast, Rivne Oblast,Volyn Oblast, Lviv Oblast, and Kiev Oblast) experienced more births than deaths.[8] This demonstrates a positive trend of increasing birthrates in the last couple of years throughout Ukraine. The ratio of births to deaths in those regions in 2007 was 119%, 117%, 110%, 100.7%, and 108%, respectively. With the exception of Kiev region, all of the regions with more births than deaths were in western Ukraine."

Kiev as the capital is anomalous, but the data shows very different patterns among the 10 million western Ukrainians living in lands that were joined to the USSR only in 1939, and the other 35 million Ukrainians.

I'm wondering what you make of this in terms of Ukraine's economic future?

Edward Hugh said...

Hello,

Thanks for the comments. Just to let you know I have seen them. You ask really a rather tricky question, so answering will take time. Please check back overthe weekend, and I will try and put soemthing up.

Perhaps the most interesting piece I have read on Ukraine fertility is the Perelli-Harris study. Here (below) are the details and the abstract. If you can't access, mail me and I will send you the PDF in attach.

Cheers,

Edward

The path to lowest-low fertility in Ukraine

Brienna Perelli-Harris

University of Michigan

Population Studies, Vol. 59, No. 1, 2005, pp. 55-70


The phenomenon of lowest-low fertility, defined as total fertility below 1.3, is now emerging throughout Europe and is attributed by many to postponement of the initiation of childbearing. Here an investigation of the case of Ukraine, where total fertility*/1.1 in 2001*/is one of the world’s lowest, shows that there is more than one pathway to lowest low fertility. Although Ukraine has undergone immense political and economic transformations in the past decade, it has maintained a young age at first birth and nearly universal childbearing. Analyses of official national statistics and the Ukrainian Reproductive Health Survey show that fertility declined to very low levels without a transition to a later pattern of childbearing. Findings from focus-group interviews are used to suggest explanations of the early fertility pattern. These include the persistence of traditional norms for childbearing and the roles of men and women, concerns about medical complications and infertility at a later age, and the link between early fertility and early marriage.

Edward Hugh said...

Well, OK, I'm back. It's been a hard christmas.

Now.First of all, about the crude birth rate - which is the measure you use - this is a most unsatisfactory measure of fertility, since it tells you very little about how many people are in childbearing age.

What do I mean by this? Well in 1989 (which is the first year for which I have data) there were 691,143 children born. In 2007, which is the last year for which we have data, there were 472,657 children born.

Now if, as Perelli Harris explains, large numbers of Ukrainian women have one, and only one, child (Poland is very similar in this respect), and the average age of first birth is 23, then the number of children born in 2008 will be influenced more than any other factor by the number of children born in 1985.

No measure of ferility is perfect. The best measure is the completed cohort fertility measure, but this only becomes available for each cohort as they reach the end of their childbearing potential. The other measure that is widely used - the period total fertility rate measure (TFR) is normally rather imperfect given the large postponement effect which is normally present, and as a result TFRs can be rather misleading. But what is so surprising about Ukraine - as Perelli Harris makes clear - is that fertility fell to 1.1 even without much in the way of postponement. Personally I regard this as pretty worrying.

A second factor which you might like to think about in the context of the recent increase in births is that this is not *only* due to more women being in the relevant ages (perhaps, I can't get my hands on the data, but what we do know is that as the years pass now the numbers of births should fall, since the number fo potential mothers is about to fall rapidly, to about two thirds of where it is now), but there is also the "feel good" effect of a period of positive economic growth, a phenomenon which is pretty widely attested in the fertility literature, and now you are entering some years of economic difficulty you may well get the downside of this, in terms of the "feel bad" effect, not to mention any possible impact from out migration.

"Any comment on the significant (indeed, enormous) regional differences within Ukraine in terms of birth rate, life expectancy, health rate etc. and how this may impact Ukraine's economy in the future?"

This is much more difficult, although these regional difficulties are obviously interesting. You can find something similar in Estonia, by the way, with ethnic Russians having a much lower base fertility than ethnic Estonians who are coming much nearer to the Scandinavian pattern. I have no real explanation for this, other than to say that culture does matter.

"Basically, demographically it is as if there were two countries, not one, and therefore just considering the average doesn't tell us much."

Well, it doesn't, except that you have one economy - like Germany, where regional patterns also exist. Of course, looking at the depth of the present crisis, and all that is happening, on a worst case scenario you may get to be two countries rather than one, but the short term shock that this would involve simply doesn't bear thinking about.

Basically, I wouldn't make any reductionist extrapolations from demographics to economic performance, just that it is a very important structural parameter in the longer run. At this point it is very hard to be optimistic about Ukraine. I wish I could be more positive.

AP said...

Thank you for your responses! I would like to, however, reiterate that because from a demographic perspective Ukraine is not unitary, then speaking of averages makes little sense. There is one reality in the eastern 80% of the country (birth rate approximately 9/1,000) and a completely different reality in the western 20% of the country (birthrate around 11/1,000) with similarly large discrepencies in death rates, such that the birth rate actually exceeding the eath rate in some of tghe westernprovinces, while int he east there are twice as many deaths as births.

Anonymous said...

A further reason of the decreasing population, although not mentioned here, is the fact, that the World Bank forecasts about 800000 Ukrainians to have AIDS by 2014, being the highest part in Europe.

The main fact about that is, that there is no trend in this development.

Anonymous said...

The current problems should not be translated into population evolution problems (in the long run you are right though). They are the direct result of bad economic policies or lack of policies. Ukraine never built a real economic base to justify the growth it had. It was all based on capital inflow to satisfy consumption. Building stores became a core business for almost every ex communist country. Turning the country into a real economy is going to be a very challenging task, unlikely to be achieved by the current leadership. One positive note though. I dont think a default on loans by the country or it's banks makes a difference. They cannot borrow anymore anyway. As such it looks like the default is already factored in. It explains the almost sudden stop of the economy. It is as if it already has defaulted...
What US banks did to poor US consumers, EU banks did in Ukraine. They were our beggars getting loans. Equally irresponsible.

Edward Hugh said...

Hi,

"The current problems should not be translated into population evolution problems... they are the direct result of bad economic policies or lack of policies."

Well, on one level I agree with you, but if it is just a question of bad policy - since across the group there were a whole number of different policies - why did they do it? And, more importantly, why did no one, except maybe some people at the ratings agencies, point out the error of their ways to them?

I mean I am not just talking about places like Ukraine, or Russia, or Serbia here, but the Czech Republic, or Poland, or Slovenia??

Why do they all have this awful mess now looming over them.

And why is Turkey different? Better policies perhaps. Taking more advantage of the EU admission procedure as an anchor. Oh, I know, even Turkey is talking to the IMF, but the mid term prospects are extraordinarily better, and the issue is why.

Not to mention Brazil and India. Weere their policies so much better? Thank god the ratings agencies didn't agree to investment grade quickly enough.

"I dont think a default on loans by the country or it's banks makes a difference. They cannot borrow anymore anyway. As such it looks like the default is already factored in. It explains the almost sudden stop of the economy. It is as if it already has defaulted..."

Oh, this is a very interesting point. Makes a lot of sense. Spain's position isn't that different at the end of the day on this one.

"What US banks did to poor US consumers, EU banks did in Ukraine. They were our beggars getting loans. Equally irresponsible."

Definitely. I agree. And it is these banks and their governments who should now foot the bill.

Anonymous said...

One has to be aware - and here is Edward Hughes definatley right - that in the longer run, population dynamics is a crucial factor for the economic growth of a country. The traditional long-term macroeconomic models (Solow, Ramsey) use all the population growth as a crucial exogenous input variable - next to the so called "technological progress".

Neverthless, the long-term dynamics is also influencing the short and mid-term dynamics (and vice versa). While Edward pointed out in one of his 2007 blog posts (about inflation in Ukraine), it was easy to see that the labour supply shortage resulted in a high wage increase, driving inflation to two digit numbers.

The problem in that are not necessarily the relativley high wages (paid for eg. in the capital), but the relativley low underlying productivity. An economy which is itself relativley weak, meaning that the productivity is low and in the same time relativley high wages are paid, additionally having some main sectors which are heavily depending on the international markets, is going to be hit harder, if the foreign capital flows dry out.

It is indeed like that, if to take Turkey as comparision, that Turkey has still a positive population dynamics (see here: http://www.berlin-institut.org/online-handbuchdemografie/bevoelkerungsdynamik/regionale-dynamik/tuerkei.html), growing from 1990 from 56 Mio. to 70 Mio. in 2007, while the population is considered to grow further until the mid of this century up to almost 100 Mio - despite (in absolute terms) a high emmigration to Western Europe. While emmigration in the case of Turkey is due to a overhang of supply in the labour market and mostly concerns unskilled labour, in Ukraine, it seems that emmigration is mainly concerning high-qualified labour forces.

As we all know, also Western Europe faces the challenge of lower fertility rates, but seems due to open labour markets be able to attract the needed labour forces. Even if Ukraine would allow at some time to open its labour market, it is for me highly questionable where these labour forces should come from. What seems to possible to attract are then mainly unskilled labour forces, from such countries of Mid East Asia or Africa.

As I think, to come back to the comparision with Turkey:
Turkey is known as a relative cheap "production center" (textile industry), due to its low labour costs. Ukraine is, therefore, a relative expensive place, with maybe higher skilled, but less productive labour forces.

I don't know if there already exists a blog about, but it would be interesting to investigate the reasons for the low fertility rates and the decreasing of the population in Eastern Europe. It seems, that the Sovjetunion could, through its authoritarian policy, force people to have some amount of children in order to get state benefits (flats).

Anyway, to have a child is - in my opinion - a relative irrational decision from an economic point of view. It is also question of the mentality and the culture of a nation, where family ties play a role and in general family structures.

Edward Hugh said...

Hi,

And thanks for a very interesting comment.

"The traditional long-term macroeconomic models (Solow, Ramsey) use all the population growth as a crucial exogenous input variable - next to the so called "technological progress"."

Exactly, this is the whole point, so it is a kind of negative shock affecting both the level of the labour force and the level of saving. And if you endogenise fertility in your model, the problem arguably can get even worse, as low fertility perpetuates low fertility, in what the German demographer Wolfgang Lutz describes as the low fertility trap.

"The problem in that are not necessarily the relativley high wages (paid for eg. in the capital), but the relativley low underlying productivity. An economy which is itself relativley weak, meaning that the productivity is low and in the same time relativley high wages are paid, additionally having some main sectors which are heavily depending on the international markets, is going to be hit harder, if the foreign capital flows dry out."

Yep, I absolutely agree. You've got it.

"Anyway, to have a child is - in my opinion - a relative irrational decision from an economic point of view. It is also question of the mentality and the culture of a nation, where family ties play a role and in general family structures."

Well, there is clearly no simple reductionist model to explain this very complex phenomenon. Claus Vistesen and I did run a blog called Demography Matters which went over a lot of the theories, but with the weight of the crisis over the last 6 months this has now gotten rather rusty.

Anonymous said...

Hi all together,

I wanted to point your attention on the following interview with Anders Aslund, an economist of the P.G.P. Institute. The interview is from October last year:

http://www.iie.com/publications/papers/pp20081030aslund.pdf

Anders Åslund:

"It’s a bit eerie. You see all of this construction—the cranes over a booming
city with lots of sky-rise buildings being built—all of a sudden standing still.
The equipment was still standing there just abandoned, but there were no
people there."


Ukraine is one of several countries hit by this global financial contagion. Why
is there a special concern about Ukraine?

Anders Åslund:

"You can say that it is strange because Ukraine’s state finances are basically
quite balanced. Ukraine has hardly any public debt. Its balance of payments
is not great, but there are many other countries that have a worse balance of
payments. The critical factors are two. The first is that the Ukrainian politics
are so messy that the outside world doesn’t believe in it. The other reason is
that Ukraine is highly dependent on steel exports and the steel industry is
now going down very, very fast."


Does this financial crisis threaten the democratic process in Ukraine?

Anders Åslund:

"It can do so. This is a very serious crisis, of course. The Ukrainian population
can see that the politicians have been fighting among themselves for no
good reason and ignoring a massive crisis. The political system’s legitimacy
naturally becomes questioned."

What have been the major factors that brought this crisis about?

Anders Åslund:

"You can say that it is that politicians have been sleeping at the wheel.
The outside world has seen that. And the external business situation has
deteriorated very fast because 40 percent of Ukraine’s exports consist of
steel, and previously, much of the steel was exported to China. Now, all of a
sudden, China is exporting steel itself, and most Ukrainian steel is of rather
inferior quality. Last month, Ukraine cut its production by no less than 30
percent, and that is of course felt. One of the biggest steel groups a week ago
announced that it would sack no less than one-third of its workers."


What must Ukraine do immediately in the short term?

Anders Åslund:

"The only solution is serious belt-tightening, and you can do that in many
ways. First of all, Ukraine has to tighten the state budget, although it’s already
in balance. Expenditures have to go down because revenues will fall in this
situation, and the government is now announcing that it will freeze social
expenditures only when inflation is relatively high. Taxes are not being raised
much but excise taxes—for example, on cars—are likely to be increased, and
consumer prices—notably on subsidized gas—will go up very substantially.
And, of course, the exchange rate of Ukrainian hryvnia has already fallen
by almost 30 percent, which means that imports have become much more
expensive."


What are the long-term prospects for Ukraine?

Anders Åslund:

"I’m sure that Ukraine has good future prospects, but this could be quite
a hard crisis. The fundamental thing driving the world today is economic
convergence. If you have a reason to be a normal market economy with
an open economy and predominantly private ownership, you rise toward
the wealthy countries in the world as long as your economic policies are
reasonable. And I think that will be the case in Ukraine, but Ukraine has
missed a lot. Particularly, Ukraine has not legislated as much as they should
have and they will suffer from this now."

So at this place, it seems that Aslund disagrees with Edward :) Well, he in fact does not mention reasons for the "good" long term perspectives and it seems not to be enough in Ukraine just to implement all needed policy measures (which is for itself already very difficult) but we have also long-term problems with the population.

How many years do you think it will take to climb out of this problem?

Anders Åslund:

"Normally, if you have a serious financial crisis, it takes three to four years to
come out of it."

So, mid-term perspective would already be quite bad.

Anonymous said...

http://www.iie.com/publications/opeds/oped.cfm?ResearchID=996

interesting, praising of Kutchma.

Chris said...
This comment has been removed by the author.
Anonymous said...

U.S.-dollar denominated prices of Kyiv-based secondary housing December 3, 2008 through January 5, 2009, fell by 19.3% on average.

According to data posted on www.realt.kiev.ua, the average price of one square meter of housing on Kyiv's secondary market over the period under review fell by 16.99%, while the price of a flat decreased by 21.62%. On average, the price of one square meter of primary housing in the hryvnia over the period under review rose by 4.97%.

On Kyiv's secondary housing market, the average price of one square meter in a one-room flat in December fell by 16.5%, while that in two-room flats decreased by 17.01% and three-room flats by 17.46%.

The average ask price on the secondary market in Kyiv per one-room flat was 20.55% down, per two-room flat 21.66% down and per three-room flat 22.64% down.

On the primary market, the average price of one square meter of housing in one-room flats over the period under review fell by 0.64%, while that in two-room flats increased by 10.05% and in three-room flat by 5.49%.

Average rent rates in Kyiv December 3, 2008 through January 5, 2009, declined by 22.11%. The average rent rates of one-room flats fell by 26.83%, that in two-room flats by 21.83%, and three-room flats by 17.67%.

The information for this analysis was taken from open sources. The Interfax-Ukraine news agency is not responsible for their reliability. (Interfax-Ukraine)

Anonymous said...

Thats only the beginning, prices will fall 20 % every month. As the unemployed number increase many will go back to village, a lot of flats will stay empty. Rent will fall further. People from Doneskt who bought in Kiev will sell because they lost jobs in Doneskt by the thousands. Ukrainians in Russia who lost jobs will come back to village, but the money they send to Ukraine will no longer. Also many Ukrainians in other parts of the world will also stop sending money. Shops and magazines will close, people who work there will lose their jobs. There will be fewer cars on the streets of Kiev which is a good thing. Gas prices will rise, electronics will rise, food will rise, wages will fall. The negative multiplier will work to send Ukraine back to the year 1998. Sorry thats how it works folks. IMF will not save Ukraine but ofcourse many politicians will take IMF money for their own use. USA has its own problems. Russia will also go backwards.

Anonymous said...

Everybody can predict doom & gloom. It makes more sense to think about what measures can get Ukraine out of the current situation. Dont forget that things were worse in 1993 & 1998 for most people in Ukraine. During this period the population fell sharply and a tremendous amount of skilled people left. The impact of an aging population was there already and did not stop growth.

Anonymous said...

Even if Ukraine grew in the last decade, it doesn't mean (1) that it reached it full possible growth potential.

And one thing we see: The inflation in Ukraine was in the last decade with some exceptions massive. And wages are quite high in some sectors corresponding to production.

It doesn't mean just that if the country grew, it will grow the next ten years in the same way. Obviously, it is easier to grow from a small starting level faster than from a higher starting level, also from that point of view, one should not expect best for Ukraine in the long-run.

That the economy is weak, doesn't need any comment. And that is also - as against Turkey - due to the fact, that there are few labour forces relativley high paid due to labour overhang but in same time with low productivity.

Are these good perspectives?

UkrToday said...

Thanks for your insightful artical.

It’s detail is impressive.

Ukraine has been inflicted with political instability ever since its declared independence., It has also been involved in a struggle to adopt a European parliamentary style democracy, something that Yushchenko has been opposed to.

The latest fall in the value of the hrivina does appear to be artificially controlled. The property market has boomed beyond sustainability and reach of the Ukrainian population and average income. A boom bust cycle is unavoidable. Ukraine has only recently been seduced by the accessible level of credit Unlike the 1998 bust it has not had to undergo major bank foreclosures. Banks in Ukraine are highly capital geared and in many cases hold more value in assets then in liquidity. If the loss of confidence and over inflation and devaluation of the hrivina creates a run on the banks some banks might take flight with assets and investments disappearing overnight. Ukraine does not have a strong regulatory enforcement system in place to deal with opportunistic lending practices or asset redemption. It is in effect a tinder box likely to ignite.

What needs to be look at is the comaritive indicators for neighboring states and economies. Ukraine appears to be more worst off then it’s neighbors, which begs the question why? to what extent did the political instability and threat of another round of parliamentary elections fueled the current crisis. It is difficult to see how fresh parliamentary election would resolve, only exacerbate Ukraine’s political instability.

Ukraine needs to rebuild its governing institutions and adopt European standards and system of governance

Most of the problems associated with Political instability are due primarily to the office of the President, According to recent public opinon polls by Viktor Yushchenko maintains 4% of public support. If fresh election are seen as a possible pressure release value then early Presidential elections are the better option. better still would be for Ukraine to adopt a European style parliamentary system of governance bringing it in line with other European states.

Ukraine has foundered under Viktor Yushchenko’s rule. Opportunity lost with effort and time wasted on trivial infighting between the Office of the President and the parliament.

Yushenko has sought to dismiss two parliaments and hold three elections under his termof office.

2007 saw Ukraine embroiled in conflict for nine months, in what was clearly an unconstitutional power grab by the President who further undermined Ukraine’s democratic development by illegally interfering in the independence of Ukraine judiciary.

The President’s attempt to further undermine Ukraine political instability in 2008 has only exacerbated Ukraine’s problems and fueled the loss of confidence.

The reformation of the governing coalition last month has added further concern as to the ineffectiveness of Yushchenko’s role as head of state.

Yushchenko has failed Ukraine.

Yushchenko is unlikely to win a second term of office should have resigned by now and handed over the role of head of state to someone else. The sooner Yushchenko is removed from office the sooner Ukraine hopefully, can begin to rebuild a democratic economy.

Of course replacing Yushchenko will not resolve all of Ukraine’s problems BUT it would go a long way towards reuniting a county that has suffered the negative consequences of his polices of division and destableization.

Anonymous said...

I agree that about long-term perspectives of the Ukrainian economy, we have to take into account standard growth models, which - as soon as an economy has reached its steady state - growths mainly with the population growth rate and the technological progress, if we limit our perspective to that.

So clearly, Ukrainian long-term perspectives are not so rosy in terms of GDP growth. In the long run, we can refer to the neutrality of money.

But the current inflation rates and the nominal wage increases are after my opinion a classical wage-price-spiral, with several reasons (monetary policy, minimal wages, big government spending in terms of pensions, supply side has structural problems) and to be viewed in the short-run (maybe mid-run).

So as the real wages-are only flexible in the positive direction and the real-wages are further not corresponding to the marginal productivity of labour. With a expansive monetary policy, one pegs the exchange rate and as maybe desired effect, the money supply rises. So one uses the famous philips curve, where one imagines to have high inflation with low unemployment.

The increase of the money demand leads to higher prices, therefore lower real-wages but as this is not accepted, nominal wages are also increased, but now with for eg. double nominal wages but also double prices....

Edward Hugh said...

Hi,

"I agree that about long-term perspectives of the Ukrainian economy, we have to take into account standard growth models, which - as soon as an economy has reached its steady state - growths"

I don't really accept the idea of steady state growth, since, outside of the very special case of the United States (and maybe France) I don't see much empirical evidence for the idea. It is simply a theoretical assumption, and not a very useful one as far as I can see.

Most growth trajectories seem inverted U shaped to me, accelerating to a peak and then falling towards (possibly evertually beyond) zero as populations age and then decline.

But this is all very theoretical.

You point, if I understand it aright, about the short term overheating policy mess is perfectly well made. The combination of increasing money supply and holding the exchange rate lead to what fairly conventional theory would predict, overheating and massive inflation.

Anonymous said...

Dear Edward,

thank you for your comments. Well, honestly said, I am not a Macroeconomist and more familiar with financial instruments, but still have some flavour for some of the theoretical models.

I just wanted to point out that the decreasing population (here in the case of Ukraine) and therefore the reduction of the labour supply, are long-term dynamics with long-term consequences.

You pointed out that this effect (relativley small labour supply) lead to wages not corresponding to productivity, and further to inflation.

In the short run, I think that one has also to take into account the wage-price spiral, which drives inflation into two digits and nominal wages into sky.

So, the question for me is just if that what we saw in the last years (high inflation and high nominal wages) are already the effect of a relativley small labour supply or do we just see that - what other Eeastern European countries after Swjetunion also experienced - a wage price-spiral, due to structural and monetary problems.

I mean can after only two decades (after transformation) already the cause for the inflation spiral be found in the population decline?

Best regards,
Bob

Edward Hugh said...

Hello Bob,

"I just wanted to point out that the decreasing population (here in the case of Ukraine) and therefore the reduction of the labour supply, are long-term dynamics with long-term consequences."

Yes, I absolutely agree. Go through some of my earlier posts at the top of the right sidebar.

"So, the question for me is just if that what we saw in the last years (high inflation and high nominal wages) are already the effect of a relativley small labour supply "

Exactly. See the posts. This is all already arriving, and is exaccerbated by having so many people working abroad and sending home remittances which created income streams with which relatives built and bought houses using credit sent over by Hungarian and west European banks, even though many of the people needed to build them were precisely the people working abroad and sending the money home.

All of this created a very bad dynamic, and now it is all unwinding.

I will be try and find the time to write more posts spelling out how I see things in Ukraine over the coming days (but time is a very precious commodity). In the meantime I recommend following this issues coming up over at the A Fistful Of Euros Blog.

Best wishes,

Edward

Федоренко said...

Kharkov is going to host Euro-2012 games. The city will accept ten thousand fans from Europe. And none of them knows, that during 2007 year 10423 tuberculosis infected persons have died in Ukraine. Many of them have forgotten, that illness. Germany, Finland, Austria, Italy do not inoculate their citizenzs against this lethal disease.

Unfortunately, funds became insufficient and the Kharkov authorities made an original decision. Keeping within the limits of Euro-2012 preparation Kharkov reduces the number of tubercular departments. So, by March, 15th 345 places of 545 available will be reduced in the first Kharkov’s antitubercular clinic №1. But do not worry, it is a temporary situation: liquidation of last two hundred places and complete liquidation of the whole clinic will occur till the end of this year.
http://ua-ru-news.blogspot.com/2009/01/shvonders-struggle-with-crisis.html

Willprospector said...

Please have people Join Ukraine Energy Independence in Facebook at
http://www.facebook.com/group.php?gid=42672366316&ref=ts
and contribute any suggestions they may have.
I would appreciate Edward Hughes suggestions.You should probably read the posts if you have time to see where the group is. I have already contacted US-Ukraine Business Council, Director of International Relations for Kharkov National
University,Ukraine Minister of Agrarian Policy.
Thank you for your advice,
William Stewart

Anonymous said...

Ukrainian President Viktor Yuschenko has said the state programs supporting births, adoptions, large families and handicapped children are seeing some success.

He was speaking at a ceremony dedicated to the opening of a new maternity hospital on Thursday in Kryvy Rih, the presidential press service reported.

According to the president, the state has done its best to introduce a support program for young families. The size of the aid paid at the birth of first, second and third child has been increased enormously, as for Ukraine (for every child born after December 31, 2007, a state payment is given, namely, UAH 12,240 for the first child, UAH 25,000 for the second child and 50,000 for the third and each successive child), the president added.

The number of births in Ukraine has grown in recent years from 413,000 in 2004 to 510,000 children in 2008, the president said.

According to Yuschenko, much has been done to change the attitude of the public to the family.

"My policy in this area has aimed in recent years at raising the status of every family, especially young ones," he added.

The head of the state presented the staff of the new maternity hospital with a certificate for x-ray diagnostic equipment.

The maternity hospital was converted from a clinic partially at using funds received from the sale of the state block of shares in the Krivorizhstal steel plant in 2008 (UAH 25 million).

The total value of the project exceeds UAH 80 million. At the moment, the obstetrical and pediatrics complex was reconstructed as the first part of the project. Some UAH 50 million has been spent on its reconstruction and for medical equipment.

The president also visited the Kryvy Rih medical diagnostic centre, the AIDS centre and the Spaso-Preobrazhensky i cathedral church. (Kyiv Post)

Well, this doesn't change something at the overall dynamics, after my impression.

Edward Hugh said...

Hello,

"Well, this doesn't change something at the overall dynamics, after my impression."

You are right.

Births were up in 2008, but though it seems hard to remember this now, the first half of the year was real boomtime, so there was probably a "feelgood" effect at work. This can be noted all over Eastern Europe.

But now we get the opposite. There is a very good recent article on A Fistful of Euros by Doug Muir - A good/bad time to stop having babies - on just this issue. In Latvia, for example, were the crisis stareted earlier, births are now well down. Statistics Latvia just reported a 25% year-on-year drop in births in January 2009 (from 2310 in Jan 2008 to 1860 in Jan 2009).

So the outlook for births is not good, and for the economy even worse. Also, health and life expectancy. You can hardly expect the population to be healthier in these conditions.