Wednesday, October 26, 2016

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Living Standards Plummet: What War In Ukraine Has “Achieved” #2

Gabriel Levy writing @ People And Nature examines the downturn in Ukraine's economy.

Ukrainian working people’s wages last year crashed to around 30% of their peak in 2013, in dollar terms, a report by the International Monetary Fund has said.

In January 2014, average real wages were about 75% of their level in January 2013. They fell steeply in early 2014, as war loomed – after the fall of president Viktor Yanukovich in February and the annexation of Crimea by Russia in March. During 2015, real wages fell by a further 18.5%, to hit that low point at the end of the year.

Photo: anarchist contingent on a union protest against the new labour code in November 2015. From the Ukraine activist perspective Facebook page

This year “real wages have started to recover, albeit from low levels”, the IMF’s Country Report (no. 16/319, downloadable here) said last month.

The economy as a whole has also started to bounce back from the bottom, according to the Fund’s criteria. Last year it measured a 9.9% fall in GDP and a decline in industrial output of nearly 16%. This year the IMF is expecting economic growth of 1% in Ukraine.

The production of steel, coal and other raw materials also sank during 2014 and 2015, and has made timid steps towards recovery this year.

The World Bank, in a separate report, said that poverty “increased significantly in 2015 due to declining real wages”.

“Inflation peaked at 43.3% at the end of 2015”, due to “considerable depreciation” of the hryvnia, Ukraine’s currency, said the Bank’s Ukraine Economic Update published on 22 September (downloadable here).

Households were also impacted by higher energy prices in 2015, although the new means-tested housing utility subsidy programme partly mitigated the impact. “Furthermore, unemployment increased to 9.1% at end-2015 compared to 7.2% at end-2013.” Pensions, too, have lost much of their value in dollar terms (see graph).

The Bank estimates that the proportion of Ukrainians living in poverty (which they say means living on less than $5/day at 2005 purchasing power parity rates) has risen from 3.3% in 2014 to 5.8% in 2015. And those living in “moderate poverty” comprised 15.2% of the population in 2014 and 22.2% in 2015.

from IMF report

There are several causes of this shocking fall in ordinary Ukrainians’ living standards, in my view.

First, the world economic slowdown has since 2008 hit Ukraine especially hard, because it is heavily dependent on exporting steel, steel products, wheat and other commodities. The demand for these commodities generally fell in 2014-15, and so did prices. There was a particularly sharp fall in steel prices last year.

Second, Ukraine’s ruling elite has for years been leeching both on the country’s state institutions and its most profitable industries. The accumulated years of “capital flight” – the removal of millions of dollars to overseas bank accounts – has taken its toll on investment and on employment. The extent of such corruption was one of the strong themes during the social conflict that finished off Yanukovich.

But the third and most important factor that has damaged living standards in Ukraine is the war of the past two years, and the way that it has aggravated economic chaos.


from IMF report

The Russian state, which has stoked the conflict in its attempt to maintain social control in the post-Soviet space, had no hesitation in sacrificing the livelihoods of ordinary Ukrainians – nor of ordinary Russians, whose living standards have fallen by at least one-tenth in the past two years.

The separatists, supported by Russia and relying mainly on Russian weaponry, control parts of what were once two of Ukraine’s most industrially productive regions, Donetsk and Lugansk.

In addition to destroying thousands of human lives and people’s homes, the violence has shut factories, coal mines and steelworks. The operation of those that remain open have been seriously disrupted. Trade has been wrecked.

This year’s modest economic recovery in the rest of Ukraine has been possible partly because the military conflict, while far from over, has been confined to a smaller geographical area.

There are other dangers. A new labour code has been adopted in parliament, weakening workers’ bargaining position – although it has not yet been signed into law. (For an analysis of the code, see here.)

from IMF report

The IMF and World Bank have established a stranglehold on economic and financial policymaking. Aspects of the reforms they propose will do further damage to living standards, e.g., they are gunning for an increase in the pension age. Longer-term, it goes much further: they are pushing such measures as land ownership reform that open up Ukraine to multinational capital.

But war has been the most effective method of all for imposing harsher living standards on working people. GL, 14 October 2016.


■ This evening there is a protest at Downing Street and the Russian embassy, organised by Syria Solidarity UK and London Euromaidan. Syria Solidarity UK is a group that was set up to support the popular rising against the Assad regime and now focuses on work to protect civilians in the conflict. London Euromaidan was set up to support the protests against the Yanukovich government and has supported the Ukrainian government over the military conflict in the east. It is significant that the initiative is with these groups and not the British “anti war” movement. The demonstration is important because it makes the important link between Russia’s actions in Ukraine and in Syria. This is the link that some of the British “left”, some of the Labour Party, and the Stop the War Coalition, are shamefully refusing to deal with. Having said that, I don’t agree with some of the demands in the protest call. For example it calls on the British government to investigate the RT television channel for “promoting extremism and ethnic hatred”. But the problem of media promotion of ethnic hatred goes much wider than RT – as Syrians, Ukrainians and other migrants in the UK know very well – and there is a background both of government tolerance of it, and also the danger that any legal measures introduced will actually be used to censor people (which, by the way, is what happens in Russia with the law on “inciting hatred” – and yes, I do think the British state would pull those sort of tricks too).

Slave labour in Lugansk: what the war in Ukraine has “achieved” #1

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