Reviving Ukraine’s Economy
In order to consolidate its authority, the new government will need to act fast and resolutely – and receive considerable international support – to overhaul the country’s crisis-ridden economy. Fortunately, with President Viktor Yanukovich out of the way, much of the problem – unprecedented embezzlement – has already been resolved.
WASHINGTON, DC – Ukraine has suddenly arrived at a democratic breakthrough. After former President Viktor Yanukovych incited major bloodshed, many of his MPs defected to the opposition, creating a large majority. In order to consolidate its authority, whatever new government emerges will need to act fast and resolutely – and receive considerable international support – to overhaul the country’s crisis-ridden economy.
Ukraine suffers from three large economic problems. First, its foreign payments are unsustainable. Its current-account deficit last year was an estimated 8.3% of GDP, and its foreign-currency reserves are quickly being depleted, covering just over two months of imports. Second, public finances are also unsustainable, with the budget deficit reaching almost 8% of GDP and government-bond yields skyrocketing. Third, the economy has been in recession for five quarters since mid-2012.
These problems reflect Yanukovych’s economic policy, which had one aim: enriching him, his family, and a few of his cronies. During the last four years, Ukraine has experienced unprecedented embezzlement by its rulers, with estimates putting the Yanukovych family’s wealth at $12 billion. Here, too, the new government will need international assistance if it is to recover at least some of this loot.