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Ukrainian Transitional Experience

Ukrainian Transitional Experience. Matthew Buening . Background Facts . Independence Day is August 24,1991 Slightly smaller than Texas 2nd largest in Europe Capital is Kiev . Early History. Kievan Rus was once the greatest country in Europe Mongol Invasion in 13 th Century

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Ukrainian Transitional Experience

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  1. Ukrainian Transitional Experience Matthew Buening

  2. Background Facts • Independence Day is August 24,1991 • Slightly smaller than Texas • 2nd largest in Europe • Capital is Kiev

  3. Early History • Kievan Rus was once the greatest country in Europe • Mongol Invasion in 13th Century • Part of Polish-Lithuanian Commonwealth • Imposition of serfdom, Suppression of the Orthodox Church • Russian Betrayal

  4. Modern History • Partitions of Poland in 1772, 1793, 1795 • West split between Russia and Austria • Following the fall of imperial Russia, Ukraine experienced a short lived independence • Ended by Polish-Soviet War • Following World War II, the country was united under Soviet rule • Famous People- Nikita Khrushchev, Leonid Brezhnev

  5. East and West • East • Favors ties with Russia • More Urban and Industrial ex: Sumy and Poltava • Better transportation • Closer to large industrial centers • West • Favors ties with the West • More agricultural • Higher rates of poverty

  6. Ukrainian Government • Parliamentary Democracy • President and Prime Minister • 450 seat parliament- Rada

  7. Socialistic Tendencies • Skeptics say it is socialism with a few market elements • Decisions on allocation of resources decentralized • Socialistic aspects • Soft budget constraints • Enterprises maximize production and employment instead of profits • Goods are sold by barter in late 90’s

  8. Promising Economy • Rich farm land • 57% of the country is arable • Well developed industrial base • Highly trained labor • Good educational system • Rich in natural resources

  9. Economic Trends Since Independence

  10. Inflation • Decline in taxable income • No need for military goods • Funds to large inefficient companies • The government began printing money to stay one step ahead of public expectation • Changes • Limiting the aid given to state owned companies • Suspension of salaries of state employees

  11. Introduction of the Hryvnia • Introduced in 1996 • Cut 5 zeros off of the karbovanet • Brought in money from the shadow economy • Resulted in public panic • Government ordered a freezing of prices

  12. Privatization: Independence – 1999 • 1991-1994 • Little real privatization • 1995-1999 • Every citizen received vouchers to be exchanged for shares in a company • 100-500 companies privatized a month • Companies generally small to medium size firms • Ex: Obolon

  13. Privatization: 1999-Present • Dominated by sale of large companies • Ex: Donbasenergo • Slow process due to government apathy and litigations • Ex: Rivne Azot • Marked by corruption • Ex: Kryvorizhstal • Hurt Foreign Direct Investment

  14. Foreign Direct Investment (FDI) • Low in the region • In 2004 Ukraine had $7 Billion Poland had $50 Billion • Passed few laws to encourage FDI • Orange revolution gives hope • Only way to boost FDI is to continue selling large state enterprises • Ex: Ukrtelecom, Resell of Kryvorizhstal

  15. Trade • Chief Exports • Steel, Energy, Chemical, Agricultural Products • Metallurgical market • 2003 Growth • 2005 slump • Exports: Europe- 39% Asia- 25% CIS countries- 25% Other- 11% • Imports: CIS counties- 50% Europe- 32% Other- 18%

  16. Trade Continued • Common Economic Area with Russia, Belarus, Kazakhstan • Problems with Russian oil dependency • Putin blocks delivery of crude oil • Ukrainian response

  17. Ukrainian Oil Situation

  18. GDP comparison

  19. Pre- 1999 GDP • Low GDP due to • 1)complex laws and regulation of businesses • 2)Weak enforcement of contract law • 3)Low bank lending • By 1999 barter operations had surpassed 50%

  20. GDP: 1999-2004 • Jump started by then Prime Minister Viktor Yushchenko • Economic growth due to • 1)Simplified taxation • 2)Increase in privatization and development • 3)Rising world prices in metal • Bank lending increasing 50% per year during period • Industrial sector increase has greatly helped GDP growth

  21. Post Elections • January 2005- Viktor Yushchenko became President • Conflict between President and Prime Minister • Economic policy has been derailed since Yushchenko became President • March 2006- Constitutional changes gives power from the President to the Prime Minister

  22. Closing Question • This month the country will hold parliamentary elections • How will the outcome affect the country’s transition

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