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The Ukrainian Economy Essay, Research Paper
Since moving into a market economy, the Ukraine has faced many problems which have
threatened its very existence. High unemployment, inflation, a lack of money to pay for
social and economic programs, the effects of the Chernobyl nuclear disaster, and an
overall slow move to a free market economy have combined to cause great poverty and
suffering for the Ukrainian people . Despite everything going against it, the Ukraine has
taken the first steps to turning its situation around, and alleviating the pain and suffering of
her ailing citizens.
The Ukraine has tremendous economic potential. The vast mineral resources
within the Ukraine, which includes large reserves of coal, iron-ore, manganese, bauxite,
titanium, and salt, allow for a large industrial base to be established ( Ukraine- Economy,
1). As a result of the vast resources available, the Ukrainian economy is highly
industrialized, with industry accounting for more than 40% of the countries net material
product, and 25% of the total employment (Ukraine- Economy, 1).
The Ukraine is also heavily reliant on its agricultural background as a key part of
it?s economy. The total amount of arable land within the Ukraine amounts to 40, 782, 000
hectares (Detail information about Ukraine, 1). The ?bread basket of Europe? is a major
exporter of wheat, sugar beets, potatoes, sunflowers, and flax. In total, agriculture
accounts for 30% of the NMP, and 25% of all employment (Ukraine- Economy, 1).
The Ukraine is also a huge producer of energy, though it is still heavily dependent
on other CIS states for much of its oil and natural gas needs (Ukraine- Economy, 1). Coal
accounts for 30% of the nations energy output, while nuclear power, having been
downscaled since the Chernobyl disaster, accounts for only 25% (Ukraine- Economy, 1).
The rest of the required energy is brought in from Russia and Belarus.
The Ukrainian economy currently has a GDP of $205.4 billion, which is constantly
rising with the growing amount of export goods being shipped abroad since the market
was opened up (Nato Colloquium 1995, 3). The main exports of the Ukrainian economy
are ferrous metals, engines, equipment, appliances, chemicals, minerals, and vehicles,
which totaled 74% of total exports (Ukraine- Economy, 1). The major imports are oil,
gas, oil products, automobiles, and plastic and rubber products (Ukraine- Economy, 1).
Despite the huge amounts of natural resources possessed by the country, the
Ukraine entered the post-communist era in a mess. A huge national debt, mixed with a
heavy reliance on other nations for energy, and the political instability within the country
during the move to a market economy has put a tremendous strain on the Ukrainian
economy (Ukraine- Economy, 1).
One of the main causes of the huge national debt of the Ukraine is its reliance on
imported fuel. The reliance on foreign fuel was so high, in fact, that the Ukraine had a
trade balance of $-1 billion annually, while the national debt rose an average of $5.5 billion
dollars a year during the early 90?s (Nato Colloquium, 2). The huge debt, which resulted
due to poor government decisions, a lack of foreign trade, and the reliance on foreign
energy sources, created a desperate situation for many citizens (Welcome to Ukraine, 1).
The situation was, as it still is, so desperate that many workers haven?t been paid for
months, sometimes years (Conclusions, 1). Ukrainian miners alone are owed a total of
$367 million (Shafted, 1).
Another factor which hindered the Ukraine?s progress in its early days of
Capitalism was the lingering effects of the Chernobyl disaster, most noticeably the loss of
agricultural trade as a result of radioactive contamination (Ecology and Health, 1).
Other serious problems which occurred at the beginning of the Ukraine?s
independence were high unemployment and inflation rates (Ukraine- Economy, 1). In
1991 the unemployment rate was a whopping 19%, but by 1997 it had shrunk to 10%,
slightly higher than Canada?s rate (Microsoft Encarta Explorer- Ukraine, 4).
Due to the effects of the high debt, inflation, and unemployment, the Ukrainian
government has been forced to beg for money (Karon, 1). In 1992 the Ukraine was given
over $1.5 billion in aid, including $900,000 from the US to aid in the dismantling of the
Ukraine?s nuclear arsenal and to solidify Ukrainian independence from Russia (Karon, 1).
As a result of all the problems facing the Ukraine before it even had a chance to
improve its circumstances, the move to a market economy has been slower than in other
nations, such as Romania and China (Nato Colloquium, 5). As such, the economy has not
yet fully converted, and the situation has not been able to improve.
The Chernobyl nuclear disaster has also had a profound effect on the lives of
millions of Ukrainians, and deadly effects on the Ukrainian economy. A total of 150,000
sq. km?s of some of the best agricultural land in the world was poisoned by nuclear waste
released during the Chernobyl disaster, and is still unusable today (Agriculture, 1). On top
of this, all agricultural products grown within 200 sq. km?s of Chernobyl have been
banned for human consumption (Agriculture, 1).
But what does all this mean for the Ukraine? Due to the displacement of millions
of people because of the accident, key cities such as Kiev and Kharkov have become
overcrowded, which has caused high unemployment, homelessness, and created an
increased need for the already underfunded social programs (Welcome to Ukraine-
Another problem related to the Chernobyl disaster is the medical dilemma brought
forth due to the pollution. Since 1986, radiation related diseases have become 3.9 times
more prevalent than before the accident, while the thyroid cancer rate amongst children
has become 10 times higher than anywhere else on earth (Ecology and Health, 1). In
total, 1.5 million children have been diagnosed with thyroid problems, while the total
number of people believed to have been infected by the pollution has risen to 2.5 million
(Ecology and Health, 1). This figure, however, is still believed to be climbing, as 2/3 of
the Ukrainian population live along the Dniepre river, which is known to be contaminated
with radio nuclides from the accident (Ecology and Health, 1).
All of this puts a huge strain on the medical system, which is already under funded,
as many doctors have not been paid in 2 to 6 months (Detail information about Ukraine,
1). Due to the lack of money, many Ukrainians have been forced to try and find help
outside of the country, and many have been forced to die cruel deaths, as they could not
afford to pay the high hospital and medical fees (Ecology and Health, 1).
The government, as well as the people, have also felt the effects of the disaster.
On top of lost trade income, the Ukrainian government has also been left with the burden
of dealing with the clean up of the Chernobyl site. The Ukraine needs to borrow $750
million US alone to completely seal generator 4 of the Chernobyl site (Nato Colloquium,
3). In fact, because of the high cost of importing energy from abroad, the Chernobyl site
has been forced to remain open. In order to completely close the site, the Ukraine needs
to borrow an estimated $1.6 billion (Nato Colloquium, 3). To this point, only the G-7 has
stepped forward to help by donating $300 million US (Nato Colloquium, 3). To make
matters worse, the Ukrainian government cannot apply for IMF loans due to the high
inflation within the country (Welcome to Ukraine- Economy, 1). This shortfall in money
only adds to the sickness and pollution within the country, and only helps to hurt the
already crippled economy, and weary citizens more.
However, the Ukrainian government has taken steps to alleviate the suffering
within their country, and save the shaky economy.
President Leonid Kuchma, who was recently re-elected, has been able to push
many bills through parliament designed to help the ailing economy (Levsen, 1).
Agricultural reforms, to this point, have been aimed at privatizing the former
collective farms set up by the Soviets. By doing so, the government hopes to improve
productivity which wavered under Soviet rule. If productivity is improved, the
government hopes that trade exports will improve as well (Levsen, 1).
Other key reforms made recently include the unification of the exchange rate,
reform within the banking and tax systems, liberalization of prices, reduction of subsidies
for money losing businesses and collective farms to encourage privatization, the loosening
of trade restraints, and a new consciousness about paying off the national debt in order to
stimulate the economy and encourage foreign investment (Levsen, 1).
On top of all this, the government has created programs aimed at producing more
energy inside the Ukraine rather than importing it. Unfortunately, due to a lack of funds,
and the reluctance of the IMF to give the Ukraine more money, the projects cannot get off
the ground (Levsen, 1). Finally, in order to help the suffering of the people, the
government has deregulated the prices of everyday items such as food, transportation, and
other important services to create competition within these sectors, and bring down
already skyrocketing prices (Levsen, 1).
Despite all of the reforms, the economy is still being hampered by many internal
factors within the Ukraine. To this point, foreign investment in Ukrainian industries and
enterprises has been tentative due to the constant threat of social upheaval. Communism
is still quite popular amongst the rural population, since the education rural citizens
receive is of much lower quality than in urban areas, and due to the hardships farmers have
faced since the closing of the collective farms and the implementation of a free market
(Nato Colloquium, 3). Years of inefficiency under the Soviet system, along with high
energy prices has made production costs amongst Ukrainian farmers enormous, and the
farmers simply cannot compete with cheaper imports from Europe and Asia (Agriculture,
The slow move to a market economy has also held the Ukraine back. A general
lack of funds amongst the population to allow for privatization, a lack of authority in the
central government to force provinces to implement its programs, and a reluctance
amongst the poor to welcome a market economy which has caused many to live in poverty
has greatly affected the growth of the economy (Nato Colloquium, 5).
Another factor holding back the economy is the instability within the country.
Political instability and a divide in the parliament, which has made decision making slow,
as well as the effects of the Crimean independence movement have hurt the foreign image
of the Ukraine, and made foreign investors look elsewhere (Welcome to Ukraine-
Economy, 1). The constant threat of work stoppages by workers, specifically miners and
doctors, who haven?t been paid in up to a year, have also hampered the reform efforts of
the government (Shafted, 1).
Finally, the Ukraine?s reliance on the IMF and foreign assistance, as well as a weak
hrivna, the currency of the Ukraine, has made it an unattractive atmosphere to invest in
(Welcome to Ukraine- Economy, 1).
Though the economy has many factors working against it, there have also been
some major breakthroughs recently, which show a strengthening of the economy.
The recent election of President Kuchma has strengthened central authority and
united the parliament, which has allowed for faster decision making (Duran, 5).
The efforts put into improving foreign trade also seem to be paying off as the
Ukrainian trade turnover rose from $19.7 billion in 1994 to $23 billion in 1995, with a
current trade surplus of $200 million per annum (Levsen, 1).
Another sign of an improving Ukrainian economy is the growth of the private
sector. Private sector production rose from just 40% of economic activities in 1995 to
60% currently (Levsen, 1).
The Ukraine has also achieved relative financial stability recently, based on the
gradual reduction of the deficit. In 1997 the deficit amounted to 31.2% of the GNP, while
it is currently 21% (Welcome to Ukraine- Economy, 1). As the deficit decreases, foreign
investors will continue to see the Ukraine as an increasingly safe place to invest in, and the
economy will continue to grow. Unemployment figures have also improved since the
early 90?s. The unemployment figure is still rising however, but at a slower pace than
before, with 900, 000 more people being unemployed now than were in 1989, the last year
of true communism (Welcome to Ukraine- Economy, 1).
Even though the economy appears to be improving, one needs to only look at the
Ukrainian people to see how desperate the situation truly is, despite the improving
The poor economic times, mixed with growing unemployment, the destruction of
science, the lack of money for education, culture, and arts, and the rise of a huge Mafia
presence has created an atmosphere in which the average citizen feels they have little hope
(The New Era, 1). ?Houses of Culture? have been closed down in rural areas all over the
country, such as in the Vinnytsya region where 80% of all cultural buildings have been
closed, while the National Academy of Science remains open only on paper (The New
Era, 1). School students are expecting a long vacation this winter as there is no money to
pay for electricity or heating in the schools, while teachers, professors, and medical
doctors cannot be paid because there is no money to do so (The New Era, 1) .
The growing number of victims of the Chernobyl disaster are forced to live with
inadequate medical treatment, and many cannot afford medication because of the high
costs of medicine (Ecology and Health, 1). The privatization of farms has been delayed
because peasants cannot afford to buy the land, machinery and implements to run the farm,
nevermind fertilizers or herbicides (Conclusions, 1). At the same time, a small portion of
the population lives in wealth, owning prestige apartments, cottages, cars, and other
luxuries the average person can only dream of (Conclusions, 1). People have lost hope
that changes will ever occur, and many have taken to alcohol, which is cheaper than bread,
to relieve their pain (The New Era, 1).
The Cost of living here are enormous, as the average prices for consumer goods
have risen by 83, 000 times in the past 5 years, while the price for communal services has
risen by 170, 000 times. 72.1% of Ukrainians have an average income of 4.5 million
hrivna, or $25 US per month (Growth of Prices and Income of People, 1). 60% of these
people are not on pensions or unemployed. Studies show that at the same time, a family
of 3 should be spending $275 US or 50 million hrivna a month on basic items (Growth of
prices and income of people, 1). Today, only 4.5% of all Ukrainians have an income over
9 million hrivna a month (Growth of prices and income of people, 1). All this means deep
poverty for the percentage of Ukrainians.
Today, the Ukraine is a far way from prosperity, but the promise of a great future
is there. Geographically located between Europe and Russia, the Ukraine has the potential
to become a key trading hub between east and west, while the Black Sea ports the Ukraine
possesses show promise of becoming key naval links (Economy, 2). The Ukraine also
possesses huge quantities of natural resources, including the fertile Steppes. Mixed with a
trained and well educated working population all the keys to success are there. With the
economy growing at a steady rate, the Ukraine seems poised to move ahead and become a
major world economic power. However, if it is to do so, it must begin to alleviate the
suffering of it?s people, and implement programs which help everyone, not just the
The Ukrainian people have faced hardships before, and are no strangers to
suffering as their long history shows. However, if they are to rise above their current
problems they will need to call upon every ounce of the cossack spirit which has guided
them through past hardships, in order to find their way to the bright path which beckons
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