Ukrainian economy after a year of “reforms”: Banana republic without bananas

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Translated by Tatzhit.   7/5/15

Original by Yuri Lukashin
http://blogs.korrespondent.net/blog/politics/3514298/ 


Preface by the translator

What is the key take-home point of this article?

It shows that, even if there was minimal resistance to the coup from Russians inside and outside Ukraine, turning Ukraine
into a banana republic would inevitably bring economic ruin
and collapse.


The same collapse that recently got the Pro-American, Pro-Kiev fugitive
Georgian ex-president Saakashvili to declare “If we achieve 4% economic
growth per year, it would take us 20 years to get to pre-Maidan levels”. 


The same collapse that is doing more damage to the Ukrainian nation than the smoldering war in Donbass.

As they say, a picture is worth a thousand words. So I posted both.

- Advertisement -

Pictures first – see for yourself how “good” Western reforms were for
Ukraine… Bulgaria, Moldova, Georgia, Serbia, Libya, Syria, Iraq – how
many countries does it take to realize the talk about “prosperity” is
just empty promises?

Detailed stats (everything you need to know in one picture – courtesy of Yuri Lukashin):

   

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When “foolproofing” fails: Banana republic without bananas

by Yuri Lukashin

http://blogs.korrespondent.net/blog/politics/3514298/

As we all know, the so-called “evolution of dignity” put the Ukrainian
economy in unprecedented state of depression and decay. On top of the
destruction of a once-promising country, the stunning insistence with
which Ukraine is committing suicide is simply surprising; if the current
Ukraine goes down in history at all, it will most likely be as one of
the most striking examples of mass delusion.

By now, the mid-level organizers and foot soldiers of the coup are
voicing surprise at the outcome. They’re saying: “Look, we took a course
for radical westernization and we even accepted the role of
Washington’s tool in attacking Moscow!”. And, in fact, Ukraine has been
leaning that way for a quarter century, just not so rabidly. But despite
such huge sacrifices, the standards of living and economic indicators
go down to African levels – promises of democratic paradise proven false
yet again (which could be easily predicted by anyone with an
understanding of history and economics).

So, how can an average inmate of this
giant insane asylum come to terms with what happened? How can one even
wrap his mind around it all?

Causes

Let me explain:

In simple terms, 2014 Ukraine is a country where “foolproofing” measures
have failed. Or, to be more precise, were overwhelmed by an invasion of
aggressive, highly violent imbeciles – ones that, in normal countries, are kept away not only from politics, but from people in general.

For those who don’t know, “foolproofing
measures” is a technical term for designing any complicated device or
structure to try to prevent accidental or intentional sabotage (to
protect both the device and the overly inquisitive fool).

This principle is nowadays used in pretty much all mechanisms around us –
from a microwave to an airplane. So, if some fool suddenly decides to
stick his hand in a running microwave, or jump out of a plane midflight,
almost all modern devices are designed to make this extremely
difficult.

All normal governments and complicated social structures (armies, secret
services, corporations, churches, etc.) try to establish similar safety
measures to protect themselves from internal idiots. Because an
imbecile can, for example, be put in a position of power due to some
unfortunate circumstance; then – regardless of his intentions, simply
due to stupidity – he would do irreparable damage to huge numbers of
innocent people.

However, what happens if idiots organize into a mob, united, for
example, by some moronic notions of ethnic/ideological superiority,
declare themselves the “elite of the nation”, and take over the
government by force? And keep in mind their leaders would be subject to
negative selection – the highest positions would be occupied by the most
extreme and zealous idiots*.

As we can see, the country of Ukraine and its population were completely
defenseless against such a scenario, so now we see the result.

<*Talking about negative selection, one
cannot help but remember the example of Oleg Lyashko: a man with two
fraud convictions who admitted to homosexual prostitution on video and
interrogated naked “suspected separatists” without any legal
justification, etc… Came in third in presidential election and has 5th
largest party in Rada – ed. >

Effects

In the year since the great “revolution of dignity” Ukraine has been
successfully moving towards building a specific type of economy, most
similar to a “banana republic”. In fact, there is only one thing
different between current Ukraine and its banana brethren in faraway
Africa, Latin America, and Asia, and that is complete lack of bananas.
Otherwise, a lot of characteristic features of “bananization”, including
some specific changes in economic and political systems, have become
very obvious.

 

By the way, the term “banana republic” has
been invented by the writer O. Henry in “Cabbages and Kings”, and the
one in the novel is very similar to what we see in the real world. The
novel takes place in a fictional Latin American country named
“Anchuria”, which mostly exists by exporting tropical fruit to the
United States. The population lives in extreme poverty, while the elites
regularly stage popular revolutions and palace coups against one
another. However, no matter how many times the “corrupt regime” is
replaced during yet another “revolution of dignity”, the people just
keep getting poorer, and the government more corrupt. The government is,
in fact, a puppet of an American megacorporation called “Vesuvius Fruit
Company”, which runs the whole show.

Therefore, according to the original novel, a classic banana republic
does not actually have real sovereignty, elections, mass media, politics
– all of this is just a show for the natives, orchestrated by the
greedy shareholders of the monstrous neocolonial corporations.

Why do banana republics exist? Why, in the real world, the majority of
countries have been “bananized” to some extent, and a minority are
“first world countries” – where the puppeteers are based and where the
benefits of this system concentrate?

As they say, nothing personal – only business. Someone has to gather
tropical fruit for pennies, right? Otherwise, the world will not have
cheap tropical fruit. And someone has to run the controlling
corporation…

The population of countries being “bananized” is therefore driven to
plantations, telling them that if they work for pennies just a little
bit longer and put their country under the control of Western
corporations, they will all soon work in comfortable corporate offices,
earning huge salaries and drinking coffee instead of gathering bananas
under the scorching sun.

This can be called a “banana republic pyramid scheme”, and like any
Ponzi scheme, it relies on large numbers of gullible fools. Rich
countries make others into their colonies not because they are planning
to feed them at their own expense, but because, to remain rich, they
need cheap resources and labor from colonies**.

<An economic note to be made here:

Soviet “second-world” economy was often called inferior because Soviet
citizens didn’t live quite as well as those in the first world…. but
that is not exactly the right perspective.

Yes, Europerans&Americans had better cheaper goods, but they were
only part of their system. A Frenchman had good cheap shoes, but the
Asian men who grew the cows and cotton the shoes were made of, or the
child laborers who made the shoes, often had no shoes at all.
Outsourcing the underclass to the third world isn’t the same as
prosperity.

By contrast, USSR provided everyone in the “food chain” with average-quality shoes.

USA lived better than USSR – but USA’s colonies in the region lived
worse than USSR’s Cuban friends. Until USSR fell, anyway. -ed.>

Sadly, there’s usually no shortage of natives willing to exchange their
fertile soil and natural resources for glass beads or pretty speeches
about democracy. Such is the way of the world throughout known history
and, unfortunately, for the foreseeable future.

Specific examples

Recently, in an interview with an American portal “Christian Science
Monitor”, an advisor to the genius reformer Yatsenuk, one Alexander
Kirsh, declared that the course for dismantling Ukrainian industry is
completely intentional:

“A huge number of laborers in these dying factories is preventing
Ukraine from moving towards Europe… Yes, this is going to be a painful
change. But the alternative – keeping the industry, and staying friends
with Russia – is much worse”.

And these are not empty threats, not at all. All the industrial
complexes, as well as some key areas of infrastructure, have already
closed or are on the verge of default and bankruptcy: Yuzhmash,
Zaparozie car factory, Sumy factory complex, Antonov plane
manufacturer, TurboAtom, Motor Sich, Kharkov Tractor plant,
ElectroTyazhMash, etc. etc [huge companies, like GM or Boeing in the USA
– ed.].

The metallurgical complex “MetInvest”, owned by Ahmetov, which unifies
the leading metallurgical companies, declared default back in April.
Recently, the country’s railroad monopolist “UkrZaliznytsya” has also
declared technical default. A number of similar hugely important
companies such as “Ukraine NefteGaz [Oil&Gas]”, “UkrAutoDor
[Roads]”, “EnergoAtom” [Nuclear] are in the same situation, but for now
they are being kept afloat with billions from state budget.

In fact, there are no large manufacturing companies in the Ukraine that have not either collapsed or on the verge of collapse.

A few numbers: In the year since the revolution, the purchases
of new cars have decreased by 76%, and the production of cars and other
vehicles has decreased by whole 93.5%!

Steel production, which previously gave over 30% of country’s
hard currency income, has been reduced by over a third compared to the
previous year.

Another indicator: the sales of gasoline at gas stations
(without Crimea) have decreased by 40.7% (March 2015 compared to March
2014, according to Ukraine’s State Statistics Bureau). This is a great
marker of the real economic situation, much better than the abstract GDP
numbers.

Another example: in just a year, Ukraine lost almost a third of its
banks (49 out of 180). Moreover, some of the ones that went bankrupt
were “majors” (Delta Bank for example). Actually, the whole of Ukraine’s
banking system is technically bankrupt, because those banks still
afloat (even the “majors” such as Privatbank, OshadBank, UkrEximBank)
are mostly staying solvent through huge hard currency injections from
the government. There’s lots of talk about 15 more banks on the brink of
bankruptcy; some of the “key” ones may be in there. It’s worth pointing
out that the Bank Account Insurance Fund has run dry some time ago, so
if another big bank collapses, all previous financial panics will pale
in comparison.

And of course, the “domino effect” set in motion by the “revolutionary
reforms” won’t only affect industry and banks, but will do
ever-increasing damage everywhere. Whatever numbers Yatsenuk’s band of
reformers makes up, Ukraine’s nominal GDP in dollars has fallen
three-fold due to currency collapse. Simple arithmetic: nominal GDP 2013
– 1.566 trillion hryvna, so about $180 billion at the exchange rate of
8.1 h/d. 2014 GDP was 1.465 trillion hryvna, at the current exchange
rate that’s about $62 billion. Last time the country saw such collapse
was over two decades ago.

As a result of general economic collapse and systemic infrastructure
problems, small business suffers hugely as well. It is estimated that at
least a third of small companies have either closed or are about to.
The trade sector is doing especially poorly, which is problematic
because it employed several million people, and those people are the
vulnerable part of the population – those that have been reduced to
working as sales clerks by the previous quarter-century of “genius
reforms”.

Another indicator is that over 30 international brands have closed down
their distribution networks and completely left Ukraine. For example,
Esprit (Germany), River Island (UK), OVS (Italy), New Look (UK), Minelli
(France), Lee Cooper (UK), Mexx (Netherlands), IAM and SIX (Germany).

Over the last year, roughly a third of restaurants in the country have closed down.

Of course, apart from factory and customer service industry workers,
there are also those that like to call themselves the “creative class”,
also known as “glorified office workers”. [They don’t care much for the
well-being of the industrial workers and those in the service industry,
and expected European- level salaries and open border with the EU], so
they were the main backers of the “revolution of dignity”. But, even if
they keep their jobs in the next few months (which, considering the
current tendencies, is uncertain), the sharp drop in real earnings will
severely cut down on their purchases of fashionable clothes, new
gadgets, and the free travel they so desperately wanted.

Everything is extremely simple: prices go up, purchasing power goes
down. In a single year (April 2014 to April 2015) even the official
inflation figure is at 60.9%, and the 37.4% inflation we’ve seen in the
first four months of 2015 is the highest in 19 years.

For reference, inflation under Yanukovich’s “corrupt regime”: 2013 to 2014 – 1.2%, 2012 to 2013 – 0.5%, 2011 to 2012 – 3%.

The previous inflation record was set under another team of pro-Western
“economic reform geniuses” (Timoshenko’s government), 2007 to 2008, when
it hit 31.1%.

In fact, every time an “honest and modern reform government” replaces
the “corrupt and incompetent old regime”, it immediately starts breaking
off ties with Russia and snuggling up to US and EU. By some completely
unrelated coincidence, this is always immediately followed by economic
collapse, ballooning prices and reduced standard of living, which
supposedly symbolize “progress” and “restored national dignity”.

Final indicator: the agricultural sector is apparently in big trouble as
well. The average cost of planting 1 hectare of grain has nearly
doubled over the last year, from 2.1 thousand hryvna to around 3.7.
According to the first Deputy Minister of Agriculture Yaroslav
Krasnopol’ski, this is due to increased prices of imports – seeds,
fertilizers, fuel.

Increased production costs will certainly reach the consumer within
months. The supposedly “high food prices” of today will be remembered
with great fondness come fall. How would government employees and
retirees survive this, when the “reformed” utility bills are severely
limiting their food options even now – nobody knows.

And, as a finishing move, the “reform government” is now heading down
the path of other colonial regimes: selling off everything still
remaining after the previous pro-Western “reformers” to foreign
corporations – at rock-bottom prices. Including local energy plants,
Odessa shipyards, and all Black Sea ports. For the first time in
history, all Ukrainian agricultural lands are also up for grabs, [so the
Ukrainian people soon be paying Western corporations for electricity
coming from power stations built by their fathers and working as
low-paid servants in their grandfather’s farms… “Banana republic”, eh? –
ed.].

If this mad dash to sell off anything and everything isn’t a “closing sale” of a bankrupt state, then what else could it be?

Errors in Interpretation

An idiot who firmly believes that, whatever the bumps in the road, the
overall direction to Europe is correct, would respond to everything
above with something like this: “the country needed to get rid of the
totalitarian heritage sooner or later, and killing the accursed
Muscovite mentality within ourselves is painful but necessary. The
glorious European tomorrow demands harsh reform today.”

To them, the closures of factories and businesses which fed the country
and themselves are, apparently, “necessary reforms”. Of course, we’ve
heard it all before, and many times. It hasn’t worked for a quarter
century, and it’s not about to start working now. But if imbeciles were
able to learn from their mistakes, they wouldn’t be imbeciles.

The smart people, of course, have explained to them before that their
desire to somehow fit into EU (or rather, the imaginary version Europe
that needs them and will care for them), dead or alive, whole or in
part, will not work regardless of what they do – even if they start a
war with Russia in their groveling.

Because that’s fitting a huge square peg into a small round hole.

There are numerous reasons while EU and the West in general do not need
Ukraine its current form. It simply doesn’t fit EU’s political,
economic, or cultural framework. If it did, Ukraine would have
successfully eurointegrated in the previous 24 years of trying. If it
did, EU wouldn’t let Ukrainian standards of living drop to African
levels after the “pro-European” violent takeover, and Ukraine would
enjoy the open borders, economic benefits, and other hallmarks of
European acceptance it thought it would receive shortly after “choosing
Europe”.

Imbeciles don’t understand the very simple thing: EU has plenty of its
own industry without the giant Ukrainian factories. EU has plenty of its
own population, it doesn’t need 45 million more unemployed – and it
doesn’t need the products these people know how to produce huge amounts
of: coal, metal, Soviet nuclear reactors and military hardware.

Ukraine was built for a different economic model, with different markets
and economic partners in mind. Specifically, the giant Russian market,
which supported Ukraine through mutually beneficial trade, huge fossil
fuel discounts, and Soviet–era economic connections. Cooperation with
Russia kept Ukraine afloat until now and even provided an economic base
which, as it turned out, allowed the country to grow a sizable
population of hipsters and office workers that forgot why they needed
all this unfashionable and smelly industry ( even though it’s obvious to
any sane person that the rest of Ukrainian jobs – customer service,
offices, banks, etc. – merely exist to serve the needs of the local
industry and agriculture).

Trying to become a “service economy”, where other areas are key, is not
feasible for Ukraine: as mentioned above, EU doesn’t need 45 million
more unemployed, and the world market has plenty of call center workers
with better English skills at far lower prices – in India, for example.

A Case Study

I’ll share a simple example – Ukrainian aviation industry. Of course I
don’t expect to convince imbeciles of anything, but this high-tech
industry exemplifies the degradation of what used to be Ukrainian
economy and economic / industrial might.

After the collapse of the Soviet Union there were only three countries
in the world which were capable of designing and independently building
heavy civilian and military transport planes: USA (Lockheed Martin),
Russia (OAK) and Ukraine (“Antonov”). Despite the fact that Ukraine had
unique capabilities in producing passenger and cargo civilian airplanes,
the production of aircraft has quickly dropped to less than one-tenth
of former capacity, for some kinds – less than one percent. By 2000s,
Ukraine could produce at most two aircraft a year – and even that was
accompanied by huge problems, constant government supervision, and huge
subsidies from state budget.

World aviation industry was developing exclusively in the direction of
growing monopolies (mergers and acquisitions). Centralized planning and
economies of scale, controlled by supposedly commercial corporations
(although those are, ultimately, controlled by national governments),
turned out to be necessary for surviving and staying competitive on the
world market in this high-tech era, where victor is the one who can
concentrate the most expertise and industrial capacity in his hands. The
costs are extremely high, and staying competitive requires not just
large, but gigantic super-scale production.

Currently, the “Boeing” airliners are being made across eight countries,
even if they are technically “made in the USA” (some parts and alloys
are even provided by the Russian aircraft industry). European “Airbus”
is a work of 16 countries (mostly Germany, France, Italy and Spain).

So while these mergers and acquisitions of Western aerospace
corporations and industrial capacities were going on… Ukrainian
aircraft industry broke off their segment from a larger whole and went
looking for mythical “Western investors”. Why did they keep believing
such fairytales is still not entirely clear.

Back in the day, USSR aircraft industry produced a third of the world’s
aircraft. After the Union’s collapse, this market was divided between
the victors, and countries like Ukraine, with its fractured industry,
have no hope of catching up.

So basically the village idiots that came to power in newly independent
fragments of the Union chose fairytales over scientific and industrial
integration with the rest of industrial base, preferring to believe that
the West will come and throw money at them. And while they were
waiting, the lion’s share of the world market has passed under control
of the two aforementioned megacorporations – Boeing (49% of sales) and
Airbus Industries (43%). So now they reap all the rewards, and all the
other countries combined produce only 8% of the world’s aircraft.

That’s what “bananization” looks like in practice – first world gets
high-tech monopolies, the rest are divided and get to grow bananas for
minimum wage. And even those bananas are generally owned by foreign
corporations.

What can we expect in the future?

In the next few weeks, the new, “European”, utility bills. This may be
the biggest shock yet. Of course, there has been a lot of talk about
that, but talk is one thing and holding a utility bill equal to half
your salary is quite another [average salary in Ukraine is 4000 UAH now,
or about $180 – considerably lower than Zimbabwe – ed.]. This is
unsustainable for retirees, and very bad news for everybody, including
any sort of a large enterprise that needs to pay for electricity,
heating, water etc. This would again force a bunch of businesses to
close down or flee the “new European economic reforms”.

On top of doubling the utility costs right now, to around 1500 – 4000
UAH, they will increase by another 30 to 40% in the fall – this has
already been scheduled with the IMF, so it will certainly happen.

So, utility costs in the fall may get higher than the average salary,
and greatly surpass the pensions of the 13 million retirees. And it’s
already obvious that the currently bankrupt state will not be able to
subsidize more than a tenth of those who should receive subsidies
according to law.

Maybe some people still think that the increased utility costs are totally manageable for them and not a big deal.

But even for them, I would recommend against celebrating their personal
“switch to European standards”, because the effects of further collapse
of economic and financial system are completely unpredictable. For
example: once enough people refuse to pay utilities that would trigger
another state budget crisis, which could easily topple banks that handle
the savings and company finances of the “successful businessmen”. And
if the state eventually does declare default, it would lead to collapse
of all financial activity, international and domestic.

So what is the conclusion? As they say, you have to pay for everything –
including turning one of the richest industrial parts of former USSR
into a banana republic.

The social and economic catastrophe that the country keeps sliding
towards is, to large extent, the consequence of our citizens support of
the governments that got them there, the political ideals they
worshipped, as well as Ukrainians believing that everybody else owes
them something: USA owes them because Ukraine is supposedly fighting
Russia, Europe – because Ukraine supposedly protects it from Russia’s
supposed aggression, and Russia – simply because Ukrainians are so wise
and great that Russians should admire and serve them naturally.

The moral of this story is very simple: as the Ukrainian experience has
once again shown, the common wisdom that teaches us whoring is a
despised activity is true in geopolitics, as well. In the end, you get
screwed, not paid, abandoned, and embarrassed to look honest people in
the eyes. Lots of hassle, lots of shame, very little profit. Only
village fools willingly go down that path.

 

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