Ukrainian Hryvnia's Plunge

The Ukrainian hryvnia is the worst performer against the dollar at present moment. The hryvnia has already lost more than 80 percent against the US dollar since September 2008. It was traded at 4.50 per US dollar last September in Kyiv, Ukraine's capital. Now it is traded at 8.50 per dollar. These pictures taken on the streets of Kyiv show a depreciation of hryvnia against dollar between September 2008 and September 2009.

From UkraineWatch

The main source of hryvnia's depreciation is a rampant inflation. The Tymoshenko government printed money at a steady rate since the start of recession. Ukraine's inflation rate was 26% a year ago. Now it's 16% that still leaves the Ukrainian economy with one of the highest inflation rates in the world. I am afraid that the government will print much more money closer to the presidential elections. She would pull the inflationary stunt to increase her constituency in the public sector by raising and paying wages and pensions of public sector employees. Does she understand that a majority of Ukrainians hold their savings in hryvnia and making dollar-pegged credit payments? Thus, most Ukrainians are getting screwed big times by the Tymoshenko government. Here is a funny cartoon that shows how hard prime-minister Tymoshenko works at the money printing machine. The cartoon's caption says "She Does Work!" by making a sarcastic reference to her presidential ads featuring the same caption.

From UkraineWatch

I just don't understand why the National Bank of Ukraine didn't lower the interest rate to boost the national economy instead of running a money printing machine. It would still have the depreciation effect though with a lower inflation.

But there are some bright spots in a quite gloomy picture of Ukraine's economy. The Ukrainian economy has been export-driven since the late 1990s. Steel industry was the major exporter with a 40% share of the total exports. A double-digit depreciation of hryvnia significantly boosted the industrial exports. According to the State Statistics Committee of Ukraine, the steel output grew by 16% in July and 10% in August. Moreover, Ukraine is also one of the world's top ten exporters of grain, sunflower, and corn. Did hryvnia's depreciation make export-oriented agro-producing firms better off? Yes, it did. Agricultural output demonstrated a 4% growth in Q2 of 2009.

Ukraine Seriously Needs Harvey Milk

It's been less than a week since a homophobic scandal surrounded Sir Elton John's visit to Ukraine and his humble attempt to adopt a 14-month-old HIV-positive orphan. And Ukraine has already had another outbreak of homophobia. Now it went much further than Minister Pavlenko's rambling statements about Elton John's Ukrainian adoption. Btw, it still remains a mystery whether Elton John's hubby meets the age requirements to adopt baby Lev or not. I also really wonder whether Minister Pavlenko has finally established whether baby Lev is orphan or not and whether baby Lev has HIV or not. Btw, will Minister Pavlenko make an official apology to Sir Elton John on behalf of the homophobic government? What about baby Lev? Will he just stay in the orphanage after all commotion?

Anyways, if an American gay activist Harvey Milk were alive today and somehow found himself in a downtown of Kyiv, Ukraine's capital, he would be unpleasantly surprised. He would see the anti-gay rally organized by Ukraine's NGO Love vs Homosexuality aka Love Contra. A very mixed crowd that ranged from teenage girls to grandmas protested against homosexuality in Ukraine. NGO Love Contra asked the government to reconsider a gay sex as a sex crime as it was in the Soviet Criminal Law. Protestors also carried posters with the following anti-gay statements: A Father Can Be Anybody, But a Father Can't Be a Mother; Mother + Father = Child; We Must Stop Homo-dictatorship! (Apparently, the Ukrainian democracy is over); You Aren't Born Gay, You Become Gay; Homosexuality = AIDS; Protect Your Motherland and Your Kids (I guess from gays).

You'll be surprised by a reaction of Svyatoslav Sheremet, a head of Ukraine's Gay Forum that is a leading gay rights organization in Ukraine. He says that NGO Love Contra made him a huge favor by getting together so many people and informing them about Ukraine's gay movement. I don't like Mr. Sheremet's position that must represent a view of the main gay activist of Ukraine. He still needs to learn a lot from his American role model. Why? One, a majority of Ukrainians is homophobic. Two, Ukrainians are homophobic because the whole "coming out of closet" thing is just very new to them. Common, people still have problems with getting used to a market economy and a democracy. The obvious question is: How are Ukrainians homophobic? Well, they'd rather accept you as Jewish friend than as gay friend. If you doubt my words, you can look up the public attitudes towards Jews and gays in Ukraine here. Anyways, the recent events clearly show social tensions between the gay community and general public. Though the Ukrainian politics is very far from making gay rights the main political issue, the gay problem must be addressed so that the Ukrainian society can get rid of the anachronistic fears of homosexuality and move on to celebrating Gay Pride Week or GLBT's October.

The Post-American Ukraine

This week shows that USA gives up on Ukraine. NATO gives up on Ukraine as well. The Obama administration decided to abandon a controversial missile-defense system that the Bush administration planned to build in the Czech Republic and Poland. The infamous air-defense system always rattled Mr. Putin and Mr. Medvedev. Now they can sleep well. No defense system in Eastern Europe, no threat to Russia. But can Ukraine sleep well now? No. Ukrainian politicians just woke up in a new world to them – the post-American Ukraine. Since Ukraine's breakaway from the former Soviet Union a main objective of the Ukrainian foreign policy was to distance itself from Russia and get closer to Europe. Not anymore! Nobody needs Ukrainian democracy in EU. Nobody welcomes Ukraine to NATO. Whoever will become the next president of Ukraine, he or she will have to come up with a new foreign policy if Russia gives him or her freedom of choice.

Now let's get back to Russia. If Mr. Medvedev believes in a tit-for-tat strategy in his foreign policy, then Russia must express a gratitude to the friendly Obama administration. So what does Russia do? According to the Economist, Hugo Chavez said that Venezuela would buy 92 tanks and a missile system from Russia with a $2.2 billion loan given by Russia. Wait a sec. Russia thanks USA by selling guns to anti-American Venezuela. What does the US do? The United States expresses concern over an arms race in the South America.

What else has Russia recently done? Mr. Medvedev has sent an aggressive and insulting letter to Viktor Yushchenko, Ukraine's president. Russia's district of attorney says that it has enough evidence to prove that several Ukrainians fought on the Georgina side against the Russian troops in the 2008 Russia-Georgia war. Russia's state-owned energy company GAZPROM has already told Ukrainians that they'll have heat and electricity in their homes only if their next president is pro-Russian politician. I am also afraid that Mr. Putin hasn't forgiven his biggest political embarrassment yet. Five year ago the Orange Revolutionaries, Yulia Tymoshenko and Viktor Yushchenko, brushed Mr. Putin off after he rushed prematurely to congratulate Viktor Yanukovich as winner of the rigged presidential election. The upcoming presidential election offers Mr. Putin to get back on both Yushchenko and Tymoshenko. January's presidential election in Ukraine will become the key event in Russia's new political season.

So which presidential candidate does Russia want to see as Ukraine's next president? The first choice must be Viktor Yanukovich. However, president Yushchenko's party OUNS speculates that Mrs. Tymoshenko has already made a deal with Russia.

Ukraine’s Land Reform in Faces

I conducted a fieldwork in Ukraine between two summers of 2007 & 2008. It's approved by the Human Subject Review Board (HSRB) at George Mason University. Every social scientist has to go through HSRB if your fieldwork involves interviews with human subjects (that's how HSRB calls people).

Why did I conduct fieldwork in Ukraine? First, I am very interested in the aftermath of Ukraine's privatization and its unintended consequences for Ukrainians. I've also noticed that Ukraine has developed a very interesting mix of socialist-capitalist property rights system since its breakaway from the FSU. Second, I strongly believe that a quality of fieldwork improves significantly when you understand indigenous culture and speak indigenous language (in case of Ukraine, you have to speak both Russian and Ukrainian or their mixed version Surzhyk). Otherwise, you'll be either brushed off for cultural ignorance or lost in translation. I'll post more about my fieldwork soon. But now I'd like to invite you to check out a photo report about my fieldwork because I honestly believe that one picture is worth ten thousand words.

Sir Elton John is Not Old to Adopt Ukrainian Child

Minister Pavlenko changes his argument about Sir Elton John's adoption of a 14-month-old HIV-positive Ukrainian orphan. Now Mr. Pavlenko says that baby Lev (that's orphan's name) is not an orphan and nobody has confirmed a fact of his HIV-positive status yet. So it turns out that this kid has a mother and an older brother who still have parental rights over him. Moreover, it is not clear yet whether the kid has HIV or not.

Well, it's all very interesting except for one tiny detail that baby Lev resides in the orphanage for the HIV-positive kids. What's going on? Mr. Pavlenko says that social workers are working with the mother and they are trying to persuade her to start a new life and take back baby Lev.

Anyways, Minister Pavlenko gave up his argument about Elton John's age after the Ukrainian mass media pointed to him that John's partner David Furnish met the age rule for the child adoption. Now Mr. Pavlenko says that Sir Elton John still cannot adopt baby Lev because the poor boy has a biological parent who has a priority for his re-adoption. It's a real mess.

Finally, Mr. Pavlenko says that mass media violated a privacy of the kid and his family when his name and health status got exposed in the media outlets all over the world. Well, what can I say? Minister Pavlenko does not like the Pareto improvement.

Ukrainians have the worst teeth in Europe

I stumbled on a very interesting fact about Ukraine while I was browsing Dr. Rosling's GAPMINDER web-site. An average Ukrainian 12-yo child had 4.4 bad teeth in 2004. This makes Ukrainian kids have one of the worst smiles in Europe. Bosnia and Herzegovina was the only country in Europe where the child dentistry was in much worse shape than it was in Ukraine. An average Bosnian or Herzegovinian 12-yo child had 4.8 bad teeth in 2004. I am not sure why Ukrainians kids have the worst teeth in Europe. Ukraine's dentistry is up to European standards. Dental services are also quite affordable given the current level of income. Tooth paste and dental floss are not the luxury goods either. Could it be that Ukrainians kids just have the sweet tooth? Or should I say the sweetest tooth in Europe? Could it be that their marginal benefits from having a sweet tooth are much higher than their marginal costs from having a bad tooth?

Russia’s Oligarchs Got Hurt Badly by the 2008 Recession

I decided to take upon the Forbes method of reckoning the economic consequences of the 2008 recession. According to the Forbes, total net worth of Russia's billionaires dropped from $471.4 billion in 2008 to $92.6 billion in 2009, as shown in Table 1. In other words, the fortunes of the Russian riches shrank five times or by 80%. So on average the Russian billionaires lost almost half of their wealth. If the average "Abramovich" had $5.4 billion in his pocket in 2008, then he had only around $3 billion a year later. The Forbes' World's Billionaire List featured almost 90 Russians in 2008. Now the Forbes' list has only 28 of them.

Btw, according to the Economist, Russia's GDP shrank by almost 11% in the Q2 of 2009 as compared to the Q2 of 2008. Russia's GDP was $2,266 trillion in 2008. So Russia's economy lost around $250 billion, while Russia's oligarchs lost about $378.8 billion. Thus, Russia's oligarchs lost more than Russia's economy, ha?

Table 1. The Forbes' List of Russia's Billionaires, 2008-2009.

Year	2008	2009	Abs. ∆	% ∆
Total Net Worth ($ bil)	471.4	92.6	5.1	80.4
Number of billionaires
Russian citizen	87	31	2.81	64.4
Russian resident	81	28	2.89	65.4
Foreign resident	6	3	2	50

Elton John, Too Old to Adopt a Child According to Ukrainian Law

Maria Danilova, Associated Press journalist, writes in today's The Washington Post that Elton John won't be able to adopt a 14-month-old HIV-positive child from Ukraine because the pop star is too old and isn't married. Family, Youth and Sports Minister Yuriy Pavlenko told the Associated Press that the adoption wouldn't happen because adoptive parents must be married and because the pop star was too old. Elton John is 62 and his life partner David Furnish is 47. But Ukraine's law requires a parent to be no more than 45 years older than an adopted child. Oh, common! Does it really make a difference whether a parent is 46 or 45 years older? Another problem with John & Furnish is that Ukraine does not recognize gays unions as marriages. In 2005 John & Furnish tied the knot in one of the first legalized civil unions in Britain. So what is good enough for England is not good enough for Ukraine, ha? Even John's Ukrainian connections did not help with the child adoption situation. His friend, Elena Franchuk, a founder of ANTI-AIDS charity, and her husband, the richest man in Ukraine, Viktor Pinchuk, could not do anything. Minister Pavlenko said that "Elton John would not be able to adopt a Ukrainian child anyways. The law is the same for everybody: for a president, for a minister, for Elton John". At least, it's good to know that no one is above Ukraine's law. But I wonder whether the child situation would have the same outcome if it were heterosexual couples such as Angelina Jolie with Brad Pitt or Madonna? Brad Pitt is 46 yo and Madonna is 51 yo. Dear Minister Pavlenko, what will be your decision in this case?

If You Think that Eastern Europe has Problems with Democracy, Think Again!

Tyler Cowen, professor at George Mason University, writes in today's New York Times:

One disturbing portent came over the summer when it was reported that the Obama administration had promised deals to doctors and to pharmaceutical companies under the condition that they publicly support health care reform. That's another example of creating favored beneficiaries through politics.

Dr. Cowen also uses the U.S. banking sector as another example of the American democracy at work. He writes that:

If bankers criticize the Treasury or the Fed, they risk losing their gilded cages and could get a bad deal when the next bailout comes. When major economic sectors can be influenced in this way, are we really very far from the nightmare depicted by Ayn Rand in "Atlas Shrugged"?

Another professor at George Mason University, Robin Hanson, discusses pros & cons of the gag deals. Thus, a democracy is not a perfect system of governance. Log-rolling and lobbying are standard attributes of the modern democracy not only in Eastern Europe but also in North America. If log-rolling and lobbying produce policies that promote economic progress, then ends justify means. However, it is a completely different game if the democracy transfers wealth from voters to ruling elites.

British American Tobacco Will Advise Ukraine’s President on FDI

According to the Presidential Decree #613, President Yushchenko appointed several foreign CEOs to the Presidential Committee on Foreign Direct Investments. Now the FDI committee includes CEOs of several foreign companies such as British-American Tobacco, Siemens AG, ArcellorMittal, Hungary's OTP Bank, and Austria's Raiffeisen Bank. In other words, President Yushchenko's advisers will represent tobacco, steel, electronics, and banking industries. Lakshmi Mittal, a 58-year-old CEO of ArcellorMittal, is the most interesting choice among all new advisers. One, Mr. Mittal is extremely rich. The Forbes places Mr. Mittal with $19.3 billion in net worth on the eighth place in the World's Billionaires List. Two, Mr. Mittal represents British-Indian steel company that is the major rival of Ukraine's steel tycoons such as Rinat Akhmetov and Viktor Pinchuk.

Ukraine’s List of Billionaires Got Much Shorter

The 2008 recession hit Ukraine pretty well. Almost 40% of small-scale firms filed for bankruptcy. Ukraine's GDP shrank by 18%. Industrial output dropped by almost 30%. A 4% growth of agro-producing output is one of the few bright spots in a dismal picture of Ukraine's economy.

According to the Forbes, the Ukrainian billionaires also got hit by the 2008 recession really hard. Ukraine had seven billionaires listed on the Forbes's World's Billionaire List in 2008. Now there are only four billionaires on the Forbes' list. Approximately, a net worth of Ukraine's top CEOs dropped more than by three-fourths. It's just crazy. Moreover, Rinat Akhmetov, who was the richest CEO all those years before the recession, had to step down from the first place.

Btw, I wonder how the 2008 recession will affect the 2009 presidential campaign in Ukraine. Will it be the cheapest campaign in the modern history of Ukraine?

Table 1. Forbes' List of Ukraine's Billionaires, 2006-2009.

Year   Name, Corporation	2006	2008	2009
	Net Worth (USD bln) & Forbes' World Rank (#)
Ihor Kolomyisky, CEO Privat	n/a	4.2 (#253)	1.2 (#601)
Sergei Taratuta, CEO ISD	1.2 (#645)	2.7 (#428)	n/a
Rinat Akhmetov, CEO SCM	1.7 (#451)	7.3 (#127)	1.8 (#397)
Viktor Pinchuk, CEO Interpipe	1.2 (#645)	5.0 (#203)	2.6 (#246)
Henadyi Boholubov, CEO Privat	n/a	4.0 (#260)	1.2 (#647)
Konstantine Zhivago, CEO F&C	n/a	3.4 (#327)	n/a
Vitaly Haydook, CEO ISD	n/a	2.7 (#428)	n/a
Total Net Worth	4.1	29.3	5.6

Why is Gangster Music So Popular in Russia and Ukraine?

Russians and Ukrainians love gangster music that is often referred to as Shanson. It has nothing to do with French chanson and chansonniers such as Charles Aznavour or Mireille Mathieu. Neither Aznavour nor Mathieu sang about taking a prisoner's train to Siberia or stabbing ex-girlfriend for snitching. One of the Shanson masters, Michael Shufutinsky, sang about it a lot.

If you've never heard the Shanson song, it usually sounds like a light rock. It is quite often just a guitar solo that is actually considered to be the original GULAG's Shanson. Its lyrics are a mix of reggaeton and gangster rap with a Russian flavor. To become a well-respected Shanson performer, you must have a criminal record and tattoos that describe your crimes and prison sentences. Btw, a movie Eastern Promises did a really nice job with breaking down a meaning of the Russian criminal tattoos.

Shanson is so popular that there are several Shanson-oriented radio stations in Russia and Ukraine. They all have similar names such as Shanson-RU, Shanson-UA, RussianShanson etc. Ukraine's Radio Shanson is extremely popular among certain groups of population. If you happen to take a cab or a shuttle in Ukraine, you are 100% guaranteed to listen to the Shanson your entire trip. Shanson is very popular among cab/shuttle/delivery/truck-drivers. It's funny that Shanson is equally popular among both law enforcement officers and criminals. I never understood why the police officers liked Shanson songs which always portrayed them as violent and corrupt outlaws. But it's 100% guarantee that you can hear the Shanson song requests made by the police or attorney district's officers when they celebrate the Law Enforcement Day (December 20^th) or the Criminal Investigation Unit Day (October 5^th).

So why is Shanson so popular in Russia and Ukraine even though the times of GULAG are far gone? I have two theories. First, cab/shuttle-drivers use Shanson to signal their customers that they are tough and you shouldn't mess with them. In other words, pay for a ride and don't comment on their aggressive driving habits. I guess that police officers and their counterparts listen to it for the similar reasons. Truck-drivers also use it to signal their toughness to hitchhikers. The second theory is that cab/shuttle/delivery/truck-drivers used Shanson to protect their or their company's private property in the sketchy 1990s. The mechanism was the same signaling of toughness. In this case, a number of Shanson fans must have a negative correlation with a rule of law. It is actually true. A number of Shanson listeners reached its peak in the late 1990s and since then it was down the hill.

And let me finish by showing you a picture of one of the best-selling Shanson artists, Gregory Leps, that speaks for itself.

Party of Regions has Much Older and Less Educated Constituency than Its Counterparts

Here are results of the 2006 Parliamentary Elections. I know that data is a bit outdated. However, it still says a lot about demographic differences among constituencies of three major political parties: Party of Regions (POR), Bloc of Yulia Tymoshenko (BYUT), and Our Ukraine (OU). Actually, OU is now OUNS since Lutsenko's party National Self-defense joined it. Both figures indicate that POR enjoys much larger support of the "50+" group. So its constituency is older than both BYUT's and OUNS's. Moreover, POR also receives significantly larger public support among voters without a college/university degree. So its constituency is also less educated than of its counterparts, BYUT and OUNS. In the light of the upcoming presidential elections, it will be interesting to see whether these trends in the public opinion are still the same.

My prediction is that a poor economic performance under the Tymoshenko government has diverted a group of well-educated and working-age voters from BYUT. Moreover, a continuous gridlock in a relations between the Orange Revolutionaries, president Yushchenko and prime-minister Tymoshenko, also took away some public support from both BYUT and OUNS. Let's see whether POR will be able to capitalize on the current situation.





Data source: Kyiv International Institute of Sociology and the Razumkov Center, 2006.

The Happy Planet Index Places Ukraine between Chad and Yemen

Here is a new index that I've just come across. The Happy Planet Index measures "the ecological efficiency with which human-being is delivered". The HPI consists of three measures: life expectancy (data comes from UN), life satisfaction (source: the World Values Survey), and ecological footprint (source: Ecological Footprint Atlas). According to the HPI, Ukraine and Latvia are the least satisfied countries among the FSU countries. Moreover, the Ukrainians enjoy their life a bit more than the Yemenis and a bit less than the Chadians. The ecological footprint situation is OK in Ukraine. Finally, Ukraine has a pretty high rate of life expectancy (67.7 years) as compared to the rest of the FSU region. Btw, data is a bit out of date but the HPI still provides a pretty easy comparative framework for the whole world.

Political and Economic Events around the Grand Opening of the DONBASS ARENA

1. Ukraine opens the largest soccer stadium in Eastern Europe – DONBASS ARENA. A new stadium has 50,000 seats. It is the first stadium with a five-star UEFA ELITE rating built in Eastern Europe. Around $400 mln were spent on its construction.
   
2. BEYONCE performed at the DONBASS ARENA opening ceremony. President of FC SHAKTAR (eng. Coal-miner) and member of POR party, Rinat Akhmetov, said that Beyonce received $2 mln for her performance.
   
3. Donbass region demonstrates its support of POR party once again. President Yushchenko got booed at the opening ceremony of DONBASS ARENA. Prime-minister Tymoshenko who was at the opening ceremony refused to make a speech after she saw how the audience "welcomed" President Yushchenko.
   
4. The grand opening of DONBASS ARENA was so grandiose that it almost looked like the opening ceremony of the 2008 Olympic Games in Beijing (video 1, video 2).
   

Ukraine’s Economy in the Q2 of 2009

According to a new data released by Ukraine's State Committee of Statistics (UKRSTAT), Ukraine's GDP in Q2 of 2009 fell by 18% as compared to Q2 in 2008. Most of GDP's fall is attributed to a drastic contraction in a volume of industrial production, in particular, steel industry and construction sector. Ukraine's industrial output shrank by almost 30% as compared to Q2 of 2008. A volume of construction works dropped almost in half. Consumer prices have increased by 15% since July 2008. Unemployment rate is at 10% level. On a bright side, Ukraine's agricultural output increased by 3.8% in the same period of time.

If we compare Ukraine's economy to Russia's, an overall economic situation is better in Russia than in Ukraine. According the latest issue of the Economist, Russia's GDP declined by 10.9%, industrial production shrank by 10.8%, consumer prices increased by 12%, and unemployment rate is 8.3%.