Chronicles of the Collapse in Kiev – from a Ukrainian resident

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February 10, 2015

By Aaron Talka

No Bread and Circuses for You

Aaron Talka (a pseudonym) is a long-term resident of Ukraine. He writes occasionally about the situation in Kiev and maintains the blog “No Bread And Circuses For You”.

Events here in Kiev slowed down in the last half of December and the first half of January, but since then, the situation has certainly deteriorated. Here are some of the current observations from the last few weeks in the capital of Ukraine.

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A note about sources: A number of sources below mention “Source: Personal Observation” or similar. This indicates events seen or heard either by myself, by family members, by family friends, or in conversations with people we otherwise have a reason to deal with. 

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In the prior edition of the Chronicles of the Collapse of Kiev, there was a section titled “Ukrainians are starting to refuse to pay utility bills,” of which I stated I’d have more to say on this soon. So let me pick up and go into detail a bit more about this story. 

But first a correction. I started the story by stating that the unpaid utility debt was as of the end of November. That was not correct. The debt mentioned in the story was actually as of the end of October. So that means that the debt incurred up to that time, 11.8 billion hrynias, or about $800 million using the exchange rate at the time, was all incurred before the start of the heating season. Now that the heating season has begun, the utility debt will ramp up exponentially. 

Calculations of the State Statistics Committee, it follows that in the Kiev region paid 65.5% of all accounts, Kirovograd – 64.5%, Cherkasy and Chernihiv – 66%, Sumy – 62% Ternopil – 60%. The total underpayment for hot water has reached 5.5 billion hryvnia for gas – 2 billion hryvnia. 

Source: Unpaid Utility Debt in Ukraine (in Russian) – Translation by Google Translate

I’ve yet to find further news updates on this story, though it’s certain that even more people are falling behind in their utility payments. Some because they can’t pay, and some because they hope their non-payment forces the government into a more tenuous position than it is now. 

(Source: personal observation)

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Economic uncertainty has sprung into high gear. People are attempting to put their money into something that will hold value. Not only has the hryvnia taken a beating already; it’s widely anticipated that the local currency will take a further beating later this year. 

(Source: personal observation)

The national Bank of Ukraine has already committed itself to increase the money supply this year by 27%. Officially, the prediction is an inflation rate of 17% for the year 2015, but it’s most likely that it will go much higher than that.

Source: National Bank Plans Large Scale Money Printing This Year. 

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So, what is the average Ukrainian attempting to buy that will hold its value? Why, dollars of course. The official exchange rate until recently was around 16 1/2 to 1, but good luck trying to get dollars at any bank at that rate. Or at any rate. (Different rules applied to the well connected though). If you wanted dollars (under the assumption that they will hold their value a lot better than the local currency), you needed to go to the black market and buy dollars at a rate of 24 to 1! And even at a 50% premium, they sold out quickly. People would not have paid this 50% premium unless they believed the local currency would perform much worse than that. Finally, the government stopped fighting the tide and implemented what those on the street had already known. And the hryvnia duly sank. And now you can obtain dollars at banks at a rate of 25 – 1. 

(Source: personal observation)

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The fare to travel on Kiev’s Metro (subway) has just doubled, from 2 hryvnia to 4. And the fare on city run transportation; buses, trams, and trolleys have gone up to 3 hryvnia. Independent operators, who’s fares often were above the fares of city run transportation, have long since abandoned their former fare structure to comply with the new reality. The decision to implement the higher fare came before the recent 40% devaluation of the hryvnia. It’s not known if they knew this devaluation was coming and included it in the recent fare increase, or if they were not aware and will have to raise these fares again in the near future. 

Source: Fares on Public Transportation to Rise.

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Drivers of course should not rejoice either. The price of gasoline last year started around 12 and over a period of a couple of months soared to 17. Then the world wide price of oil started to plummet. But that had only a minimal effect on the price of gasoline in and around Kiev. It remained stuck around 17. Since currency devaluations most directly affect imported goods, and gasoline most certainly fits that bill, it shouldn’t be too long before the cost of gasoline reflects that 40% devaluation. 

(Source: Personal Observation)

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The ingenuity of the locals sometimes is quite impressive. Over the years, they have developed numerous ways to beat the system that is always trying to beat them first. One of the more popular ones over the years has been tampering with the meters that read electric usage to keep down the cost of electricity. But my wife was recently informed of a new way to beat the system, ironically, or maybe not, by a refugee from Lugansk.

During the Soviet era, communal buildings were built with unmetered water systems. In theory, you could use as much hot water and cold water as you liked. Over the years, authorities have tried to encourage people to install meters, but such installation would have to be paid by the homeowner, with dubious savings later. I know of a few people who installed meters on a trial basis and found out that they wouldn’t be saving any money at all, so the never reported the fact that they had a meter installed. With the price of hot water and cold water going up courtesy of the new government, people are again looking for new and innovative ways to cheat the system. So how does it work?

First go to an electronics bazaar and find out what brands and models have an aftermarket fix. Go buy a supported meter and have it installed, at your expense, and have a government inspector come in to certify it. Then install your aftermarket device, which will allow you to underreport your water usage by up to 90%. This handily beats the systems that allow you to underreport your electric usage, which generally only save you 50%.

(Source: refugee from Lugansk, currently living in Kiev).

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The price of most utilities went up again on January 1. A major component of one’s winter bills is heat, which went up 40%. But for the government, what exactly did they gain from last year’s price increase? They gained not much at all. The price for consumers went up 50%. But by the end of the year the hryvnia had lost 50% of its value. So if, hypothetically, someone had been paying 500 hryvnia a month for heat, he would now be paying 750 hryvnia. In the spring, that 500 hryvnia would be around $62. But by the end of the year, that 750 hryvnia was worth about $45. And we all know that oil and gas are generally paid for in dollars. With the new 40% price increase, someone who was paying 750 in December is now paying 1050 in January. At the previous exchange rate, that’s approximately $65. At the newest exchange rate, that 1050 comes out to $42. Oh, but consumers do get less heat. Even so, it’s hard to see how the government is gaining any ground. 

So far this winter, the government has dodged the bullet weather-wise. Except for a 10 day period in early December, this winter has been mild as winters in Kiev go. It’s been within a few degrees of zero during the day for over a week now. (For those of you in the USA, that’s 32°F).

(Source: Laws of Ukraine (rising prices), Math is my own).

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It seems that over the last few weeks, the situation with electricity has stabilized. I’ve seen no reports of ongoing outages, and my wife’s father, who was losing electricity 2 to 3 times a day now reports that the electricity situation has returned to normal. Which means that he still loses electric, but not very frequently.

(Source: Personal Observation)

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The propaganda trucks took a break for several weeks, but recently have returned to the scene, but not nearly at the same frequency as before. 

(Source: Personal Observation)

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A couple of months back, I wrote about how, while in Moscow, my wife had purchased some crucial medicine, medicine that is difficult to get in Kiev even in normal times, while managing to save 60% off what it would have cost locally. I asked her to stock up on important medicines and to make sure she always maintained a minimum of one month supply. One medicine however she apparently thought was not all that crucial, and since it has always been available and it has always been affordable, she did not pay much attention to it. A few days ago, she called more the 10 places, and none of them had this medicine available. She finally found a place that had it, near the outskirts of town, and had to travel out there to pick up the only box they have left. 

But this probably highlights an important difference between me, growing up in the USA, and her, being raised in the Soviet Union and living as an adult in Ukraine. Americans generally tend to believe everything will work out OK, and when some minor inconvenience arises, like a snowstorm, tend to panic and go out and buy a weeks worth of food. Like a good number of people and many other parts of the world, she doesn’t have the expectation that things will generally work out well. She lived through the collapse of the Soviet Union and she lived through the 10,000% hyperinflation of 1996. She understands that bad things happen and therefore she tends not to panic, because things have been quite bad before and in the end everything came out just fine. Likewise, things will probably work out just fine this time. At least that’s the hope.

(Source: Personal Observation)

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Generally most things can still be found in the supermarket, though certainly at a higher price than last year. Out of season fruits and vegetables are the most affected by price increases, along with anything that is imported. There are exceptions, of course. A tit-for-tat trade war between Ukraine and Russia has made some Russian products unavailable. Likewise, some confections have disappeared because they were made in the Donetsk region. But never fear! President Poroshenko is more than happy to satisfy your sweet tooth with his Roshen products (Though a good number of people are boycotting Roshen, it’s likely others are buying more than before).

(Source: Personal Observation)

Poroshenko’s a diabetic and can’t eat his own products. I’m sure of course that he has no trouble finding medicines that he might need. 

Roshen

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A couple of months ago, I stated that I believed that Kiev is being deliberately maintained as an island of stability within the chaos that is Ukraine. A good portion of the remaining economic activity in Ukraine is coming out of Kiev. I stated that if Kiev turned against the junta, the junta would find themselves in the world of hurt a lot quicker than if Kiev remained neutral or positive. Recent polling seems to back this up. Where in the Odessa region, 80% are against the war, and in West Ukraine, 70% are against the war, it can probably be said that in Kiev, feelings about the war still occupy a neutral position. Only 55% in Kiev are against the war. 

Source: Ukraine Wants Peace While Kiev Junta Wants War.

Now that certainly by no means is an overwhelming vote of confidence, but it has yet to turn overwhelmingly against. This is not surprising. While you do occasionally hear of some mobilization activity in Kiev, it by no means suggest that many people in Kiev are being called up. I’ve neither seen or read anything that contradicts that. If a few portions of a few major metropolitan centers can be kept relatively unimpacted by the war, it seems the government hopes that they can keep attracting investment into Ukraine. This seems to me to be a dubious strategy, but when you have very little to work with, anything that suggests a strategy will have to do.

(Source: Personal Observation)

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A person that works with my wife mentions that she occasionally volunteers at a local hospital helping those who return from the front. The stories, needless to say, are not very pleasant. This colleague works with those who suffer impaired motor skills, often from shrapnel in the brain or other blunt force injuries. Beyond that, she did not go into a great deal of detail. But there are more needs to be met than volunteers available to fulfill them.

(Source: Personal Observation)

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I help run a sports program here in Kiev. It’s just a weekly get-together to play some (sport name deliberately left blank). I help to recruit players from the English-speaking community. But once you’re in charge of recruiting players, you sometimes have the unpleasant task of telling someone they really don’t fit into the program. A couple of weeks ago, one woman answered one of our online ads. The following week, she came to play, but it was quite obvious that she had never played this game before. So after some consultation with other players, I contacted her to deliver the bad news. The first thing I discovered is that she lists her hometown from the war zone in East Ukraine. And now I’m thinking “damn, I get to tell the refugee that she doesn’t belong”. Yeah, I know, I’m taking this just a bit too personally. It’s not like I’m escorting her out of town at gunpoint. But still…

I then looked at her linked Facebook profile and found out that she just recently graduated from university here in Kiev, so that means she’s spent a good deal of time in Kiev the last few years. I guess that made it a little bit easier to tell her she didn’t fit into our program, but still, maybe this whole mess is starting to get to me.

(Source: Personal Observation)

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There will be another update about events of the last couple of weeks (Part 1b) coming out shortly, hopefully on Wednesday.

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