Europe
4:18 pm
Tue March 4, 2014

Why Is The Ukrainian Economy Such A Mess?

Originally published on Tue March 4, 2014 6:31 pm

Transcript

AUDIE CORNISH, HOST:

Among the delegations heading to Kiev this week, a team from the International Monetary Fund. Its task: to come up with a plan to help Ukraine's ailing economy. And Ukraine's interim government says it needs a lot of help. There are fears it will default on its debt. And that government pensions and state salaries could soon go unpaid.

Joining us is Anders Asland, a senior fellow at the Peterson Institute for International Economics. Welcome to the program.

ANDERS ASLAND: Thank you.

CORNISH: Now, you've advised the Ukrainian government in the past and you know the country and its economy very well. Why is its economy such a mess?

ASLAND: It's basically quite easy. President Yanukovych, who was just impeached, he had one big interest as president: To enrich himself and his family as much as possible. So this was a larceny on a big scale and he couldn't care less about the state of finances of the country or economic growth. Ukraine has stagnated for the last two years because the government was not interested in growth.

CORNISH: So you give us some context. When we talk of the Ukrainian economy, what are we talking about? What does Ukraine make? What does it grow? What does export?

ASLAND: Traditionally Ukraine used to be an agriculture economy. And agriculture has in the last decade, come back sharply. And agriculture produces now (unintelligible) of exports again. This is one of the big breadbaskets of the world and the Soviet old industries, the steel industry in the Eastern Ukraine. They've also lots of mines. That's the old Soviet base of economy but it's now gradually declining. So now it's about 30 percent of the exports.

CORNISH: So how important is Russia to the health of Ukraine's economy?

ASLAND: Russia takes about one-quarter of these Ukraine's exports. And Russia has a strong habit of cutting off its market from time to time to the neighboring countries. The Baltic countries have experienced, Georgia and Moldova. So in 2006, what generally happened is that countries turned in the other direction when Russia closes its market.

CORNISH: And Anders Asland, and we hear a lot about the oligarchs, this group of powerful and wealthy businessmen who own many of the key industries in Ukraine, how much of the economy do they really control?

ASLAND: Well, they tend to control the big enterprises in metallurgy, mining, power and the energy and the chemicals. So these industries are pretty closed for new, small and foreign companies.

CORNISH: Now, Ukraine's previous IMF loan was suspended because it failed to implement the required reforms. Talk a little bit more about why Ukraine has had such a hard time bringing its economy in line with Western norms?

ASLAND: Well, it's quite easy to understand if you all the time remember that the main purpose of this government was to enrich itself. And one of the big IMF demands was, as it always is, to keep the budget deficit under control. And Ukraine has budget deficit now about nine percent of GDP. It would need to be halved. It can't be maintained at that level.

And also, most of the difference goes to corrupt subsidies, for example, to the gas industry and to the coal industry, and to various old private industries. These subsidies have no social benefit whatsoever. Apart, most of it should be abolished and the rest should go to social benefits.

CORNISH: Is there any sense that the oligarchs might support these kind of reforms?

ASLAND: The oligarchs are like this. They are basically in favor of a normal economy. They want to legalize their fortunes. But on the other hand, they don't want to be left behind if the reforms are not taking off. So these are people who are basically opportunistic. They see both games is being played. Is it the old game or is it the new game?

If they are really convinced that it's a new normal game, then they would move towards it. So in public they're always speaking for good economic reforms. But if they're not convinced, they won't play ball.

CORNISH: Anders Asland, he's a senior fellow at the Peterson Institute for International Economics, thank you so much for speaking with us.

ASLAND: My pleasure. Transcript provided by NPR, Copyright NPR.