Anti-Ukrainian Western Propaganda or Another One Bites the Dust

Have you read Adam Swain's op-ed yet (Kyiv Post, July 15, Western Propaganda War Falsely Frames Ukraine Authoritarian)? It's a must. If you follow Ukraine's political life closely, you are in for some treat. I am sure that each of you will find something dear to your heart in this article. I would like to highlight three main points that caught my attention.

The first point that Swain makes is that there is a propaganda war against "democratic" Ukraine led by the western mass media.  The western mass media dishonestly describes Ukraine as a country lacking democratic norms. Moreover, there is no reason to believe that President Yanukovych wants to establish an autocratic rule of governance. 

Sure, President Yanukovych wants to build a nation with a consolidated democracy and free market economy. And he does everything to achieve these goals. First, he rigs the elections. Second, he throws dozens of opposition leaders in jails where they are deprived of their human rights and beaten up like Mrs. Tymoshenko. Third, his family takes business from opposition businessmen like Avakov, Fel'dman, Burda, Nemirovsky, and many others. And this list can go on. 

None of what President Yanukovych does has something to do with a democratic rule of governance. Instead, he is reversing Ukraine's history of political and economic development when Ukraine went from kin-based society to feudalism and then to capitalism. Ukraine is sliding back to the kinship system of governance where political and economic power is only kin-based. 

The second point that Swain makes is that the criminal case against Mrs. Tymoshenko is not politically motivated because it's legit. If a definition of legitimacy means different things in different countries, her case could be legit. But I doubt it that it's the case. The legitimacy of the Tymoshenko case is the last thing that comes to mind of anyone who has been following it. President Yanukovych used his kinship connections to push the Tymoshenko case through the judicial system. Should we even talk about how the judicial system works in Ukraine? Look, it does not work for regular people. And it cannot work when President of Ukraine has vested his interest in the case.    

Finally, Swain writes that the international pressure from western political leaders on the Tymoshenko case undermines the rule of law and the independence of judiciary in Ukraine. 

To make it a reasonable claim, you need to have the rule of law and independent judiciary in place. None of them exists in Ukraine. Cops are thugs and thugs are cops. Any court room is for sale. Any criminal sentence has its price.

To make democracy work, you need to have at least these democratic values in place: protection of individual rights, respect for the rule of law, independent judiciary, accountability of government, trust in government, and respect for tolerance and pluralism in civil society (ht Larry Diamond). To make capitalism work, you need to have freedom of contracts, property enforced and protected private property rights, constitutional rule of law, and independent judiciary (ht to Francis Fukuyama). So what does Ukraine have now? Nothing. That's why Ukraine's needs more attention from world mass media, international political community, and human rights activists.

 

Ukraine's Democracy is in Pain

I got back from Ukraine couple weeks ago. I was there for quite some time. But I can't still make up my mind about what I expected to see there and what I really saw there. I kept my expectations very low. But I was still shocked with the extent of cronyism and illegitimacy of government. The executive branch of power usurped other two branches of power. The constitution does not mean anything anymore. The Party of Regions and their puppets, including the Socialists, the Communists, and other twenty five parties make amendments to the constitution without calling for a national referendum. The number of the politically-motivated prosecutions is sky-rocketing reaching its peak with a physical abuse of the former prime minister Tymoshenko. 

What has happened to Mrs. Tymoshenko must send shivers down the spine of everyone who is a firm believer in human rights. The physical abuse of the political inmate # 1, the unmasked violence against the queen of the political opposition, and the blatant use of the prison guards' knuckles against the body of the Ukrainian woman draws a line between two stages of political life in Ukraine: one, with weak human rights and, two, without human rights. The second stage started on the same day when the pictures of Mrs. Tymoshenko's bruised body were revealed.  

Look I am not even mentioning the D word (i.e. democracy). I doubt that anyone has ever understood what the D words means in Ukraine. Neither Schumpeterian nor Przeworskian definition of the democracy can explain what is happening in Ukraine. According to Larry Diamond, democracy needs protection of individual rights, respect for the rule of law, trust in government, accountability of government, and respect for tolerance and pluralism in civil society. None of these democratic values exist in Ukraine.


Moreover, people are very confused about how democracy and rule of law must work. Everyone understands that you must report any kind of crime. But if you do it, you are a snitch. How can I tell on someone if I don't want to be a snitch? It's very confusing. So what do people do? They hide behind their smartphones, YouTube videos, and twitter accounts. Who gets these messages? Does anyone really trust a virtual social network in Ukraine?

In Europe and USA people talk smack about government on Facebook. In Ukraine a similar social network Odnoklassniki gives you impression that people do not care about what's happening with their democracy or they prefer to distance themselves from political events.  Are people apolitical in Ukraine? I do not think so because they talk about politics in private all the time. Once again, it's confusing. The civil society is either very weak or inexperienced. It could also be that the Yanukovych government's thuggish aggressiveness sent the whole nation in a very deep knockout. Well, sooner or later you need to get back on your feet, make pain go away, and fight back.

Ukraine at a Crossroads: What's at Stake for the U.S. and Europe?

Last Wednesday the Subcommittee on European Affairs of the US Senate Committee on Foreign Relations met to discuss a political and economic situation in Ukraine. The panel, presided by Senator Shaheen (D-NH), included Honorable Steven Pifer, the former US ambassador to Ukraine, Damon Wilson, Executive Vice President of the Atlantic Council, Edward Chow, Senior Fellow of the Center for Strategic and International Studies, and Eugenia Tymoshenko, daughter of the former prime minister of Ukraine, Yulia Tymoshenko. You can watch a full video of this panel or read testimonies if you click here. Comments are very welcome.  

Ukraine's Municipal Elections Will Be on Halloween

Ukraine will have the municipal elections on October 31, 2010, the Halloween Day. These elections are more likely to become the first non-democratic elections since the 2004 Orange Revolution. The political situation is very dramatic. The Yanukovych administration ruthlessly suppress the political opposition. 

Most municipal and mayor elections will be the one-candidate elections. The red tape of the centralized bureaucracy hinders the democratic process of candidate nomination and registration. Facing outrageously ruthless government pressure, candidates from the political opposition could neither nominate nor registerr themselves for the upcoming elections in several provinces, strongholds of the presidential party, Party of Regions. Some candidates are forced to revoke their nomination in support of the incumbent candidates who are members of the Party of Regions. By default, most municipal and mayor elections become the one-candidate elections. In Eastern provinces such as Donetsk, Kharkiv, and Luhansk advertising companies refuse to provide time and space for political advertisement of the opposition’s candidates.

The government cements the vertical integration of power at the speed that reminds the second term of the Kuchma administration. The Yanukovych administration forces all government officials to enlist in the Party of Regions. Also, President Yanukovych abuses his power by calling for criminal investigations of the opposition’s politicians. Many allies of Mrs. Tymoshenko are arrested or under investigation. Her former deputy and closest political ally, Oleksandr Turchinov, is under investigation. The General Procurator issued the arrest warrant for Bohdan Danylyshyn who was Minister of Economy in the Tymoshenko government. All recent events remind the tragic events of 1937. 

Several NGOs called for responsible public action in the upcoming elections. Most Ukrainian voters tend to agree on the new consensus that they have to vote "against all" since there are no other options in most provinces. The following banner says: "Election on the Halloween. October 31st. If you don't vote, the evil will win!" 

A Farewell to Democracy, Free Media, and Free Enterprise: Ukraine's Prospects Revised

In my old post I wondered whether Ukraine had a strong political opposition to counteract advances of President Yanukovich against democracy, economic freedon, and free media. My answer was yes. And I  was too optimistic. I thought that either former prime minister Yulia Tymoshenko or former president Viktor Yushchenko could stop the Yanukovich machine. They failed again. Everyone left Tymoshenko. Her former sponsors and party members are in the Yanukovich team now, not always voluntarily. Yushchenko is a political ghost. Nobody can stop President Yanukovich and his Party of Regions, at least, in Ukraine. The Yanukovich administration did more in six months than the Kuchma administration in ten years. The Yanukovich administration curbed media freedom, oppressed small-scale and medium-size business, and installed dictatorship.     
A farewell to freedom of speech. The Yanukovich administration curbed freedom of media really fast. Ukraine's mass media looks like Russian media now. Nobody criticizes President Yanukovich openly. It got to the point that the Voice of America can lose its broadcasting partners in Ukraine very soon as it happened in Russia. 
A farewell to free enterprise. The Yanukovich administration hammered small-scale and medium-size businesses with oppressive tax policy. The new tax code promises to become the apocalypse of economic freedom in Ukraine. All small-scale and medium-size businesses move their operations to the shadow economy before the new tax code will go in effect.
Finally, a farewell to democracy! The Yanukovich administration won the case vs the 2004 Constitutional Amendment in the Constitutional Court of Ukraine. The 2004 Amendment was very important step in Ukraine's democratization. It was once in a lifetime opportunity.  In brief, this amendment separates powers between president and prime-minister where the former is responsible for foreign policy and the latter takes on duties of domestic policy. Not anymore! The executive power is centralized now! The Constitutional Court ruled last Friday that the 2004 amendment violated the Constitution of Ukraine and thus the Constitutional Court overruled it. Did I mention that right before the seminal ruling four judges of the Constitutional Court were replaced with four new judges affiliated with the Party of Regions.
So, Ukrainians, please, say a farewell to democracy for the next five years at least. But it's no the saddest part. It's really sad that if Yulia Tymoshenko won the presidency, she would do the same. The only difference is that the Party of Regions could stop her. Who is going to stop the Yanukovich machine?   

Ukraine’s Prospects

I am reading couple books – Economic Analysis of Property Rights by Yoram Barzel and Free Market Environmentalism by Terry Anderson and Donald Leal. These books are not about Ukraine. But these books have great insights that can be applied to Ukraine. So here is what I am thinking.

Human values matter only for human decisions. Human beings always respond to incentives. Price provides the strongest incentive since money matter a lot for most people. Price sends a correct signal only in a free market and democratic society. Otherwise, a price signal comes with a white noise - a market distortion (e.g. central planning in the former Soviet Union). Then everything goes wrong. Free market economy needs democracy as much as a democracy needs market economy. Without a free expression of a political will, a dictator can destroy an unfettered faith in a free market process. Without a faith in a free market, people will not respect market prices and property rights. Without a free market, a democratic society can't use its resources efficiently because the social decisions are not based on the market prices. The final element is a rule of law. Without a rule of law, a democratic nation with a free market economy will always operate at a suboptimal level because a cornerstone of a free market society – private property – is not protected by the law. Thus, a nation can prosper only if three elements are in place. Otherwise, a nation is doomed to be an underachiever.

So where is Ukraine now? Ukraine has two elements in place – an emerging free market economy and a consolidating democracy. The rule of law is a weak link in Ukraine's path of post-socialist development. A recently elected Ukraine's president – Mr. Yanukovich - is more likely to follow the Putin's Russia style of command and control rather than a very hands-off approach of his predecessor – Mr.Yushchenko. It's a no-brainer to predict Ukraine's path of development under Mr. Yanukovich. His team will curb media freedom, redistribute state property through privatization to his donors, increase a tax burden on private sector except friendly corporations, and cater specifically to the Russian interests. Does Ukraine have a strong political opposition to offset any potential damage to be made by Mr. Yanukovich. Yes. At least, three politicians can resist Yanukovich's advancement against democracy and free market. It will be former prime minister Yulia Tymoshenko, former president Viktor Yushchenko, and former parliamentary speaker Arsenyi Yatseniuk. I guess that we will see really soon whether the Ukrainian trinity can work effectively from the barricades of the parliamentary opposition.

Stealing Popcorn

Today HQ of Mr. Viktor Yanukovich's presidential campaign showed Stealing Popcorn that was originally presented in LA more than a month ago. I've not seen it yet. But it seems that the movie represents a mix of documentary and fiction. It's about corruption in Ukraine, the Lazarenko case, and Mrs. Yulia Tymoshenko who is allegedly associated with Mr. Lazarenko's embezzlement. Btw, Stealing Popcorn features a well-known Columbia University's Professor of Post-Soviet Foreign Policy Tymothy Frye, Ukrainian-born Emeritus Professor of Economics at University of California - Berkeley, John Letiche, and UCLA's Associate Professor of Political Science Richard Anderson.

Mr. Pavel Lazarenko was Ukraine's PM between 1996 and 1997. He was accused of fraud and embezzlement of $200 million. He escaped Ukrainian justice by flying to USA where he was arrested and convicted by the American justice system. Mr Lazarenko was sentenced to nine years in federal prison. In 2004 Mr. Lazarenko posted $86 million bail to remain under house arrest at an undisclosed location in California. The Transparency International named Mr. Lazarenko the eighth most corrupt political leader in recent history.

Here is a link to a screening of Stealing Popcorn in LA, Jan 21, 2009.

Here is a link to the movie.

Mr. Viktor Yanukovich Won the 2010 Presidential Election

According to all exit-polls, former PM Viktor Yanukovich defeated the incumbent PM Yulia Tymoshenko in the 2^nd round of the 2010 Presidential election.

Here is a link to all exit-polls.

Ukraine's Central Election Committee (CVK) counted 99% of votes. Former PM Viktor Yanukovich received 48.69% of votes and the incumbent PM Yulia Tymoshenko received 45.73% of votes. Though Mr. Yanukovich's lead over Mrs. Tymoshenko dropped from 10% to 3%, Mrs. Tymoshenko still lost the 2010 Presidential election.

Here is a link to a map that shows a distribution of votes across provinces. An ideological difference between Eastern and Western Ukraine seems to persist.

The 2010 Presidential Election in Ukraine: It’s a Final Countdown

I really love this 80's rock song. Yeah, it's the final countdown for the 2010 Presidential Election in Ukraine. This Sunday Ukrainian voters will chose their next president. Will it be an odious former PM Viktor Yanukovich who was officially backed by the Kremlin in 2004 and tarnished his political reputation by using his de jure political power to rig the 2004 presidential election? Btw, the law suit against Mr. Yanukovich never made it to the Supreme Courte. Will it be another nevertheless odious incumbent PM Yulia Tymoshenko who drove Ukraine's economy to the brink of collapse by using command-control approach and choking individual economic freedom? Btw, the Kremlin considers Mrs. Tymoshenko the second BFF (after Mr. Yanukovich) since she can take all credits for the recent gas deal between Russia's state-owned Gazprom and Ukraine. According to the newly signed gas contract, among all European countries, Ukraine will pay the highest price for the Russian gas.

From UkraineWatch

Anyways, whoever wins this election should make it in a true democratic process! Nobody wants to repeat the Orange Revolution. Moreover, Ukrainians are not really psyched about the upcoming 2^nd round because very few voters can tell a difference between candidate Y and candidate T. Honestly, what's the difference? Mr. Yanukovich never disguised his pro-Russian political and economic preferences. PM Yulia Tymoshenko's economic policy did not leave much of a choice for Ukrainian business. At the present moment, Ukraine has the largest number of international trade restrictions. Russia does not really care about it because the Kremlin still apathetically negotiates its WTO membership. I am surprised that the WTO has not addressed the Ukrainian situation yet. Well, it's understandable because the Sino-US trade war is much more fun to watch. Plus, the global economic crisis is not over yet. And some countries kind of overreacted with their own trade policies. All this together keeps WTO busy.

Honestly, the previous presidential elections were much more interesting because there was always something at stake (see figures below). The 1991 presidential election was important in terms of state-building. The newly independent state needed a democratic leader such as Mr. Leonid Kravchuk (1991-1994). However, the incumbent president Kravchuk catered more to the nationalist constituency in the Western Ukraine so that the 1994 presidential election allowed the Eastern Ukraine to bring pro-Russian technocrat, Mr. Leonid Kuchma, to the power.

From UkraineWatch

The 1994 presidential election played a seminal role in the emergence of the region-based division among Ukrainian voters. In 1994 it became clear that the Western provinces held a strong preference for nationalist pro-Western politics, while the Eastern and Southern provinces strongly supported technocratic pro-Russian politics. Another interesting observation was that the Central provinces turned out to become the potential swing constituencies.

The 1999 presidential election also spiced up the Ukrainian politics. That year the Ukrainian voters had to make a crucial choice between two antagonistically ideological candidates: a left-wing pro-Russian Mr. Petro Symonenko, a leader of the Communist Party, and a right-wing incumbent president Kuchma (1994-2004) who learned to balance out his foreign policy between both EU and Russia. The leader of the Communist Party failed to capitalize on nostalgic political preferences of the Soviet-generation constituency. By receiving only 37.8% of votes, Mr. Symonenko succeeded in swinging only several Central and couple Southern provinces. In the meanwhile, most of the former Kravchuk constituency located in the Western provinces and the stronghold pro-Kuchma constituency in the Eastern provinces came united against the ghost of the communism. Since then the left-wing politicians witnessed a tremendous drop in their popularity. The communist front-runner Petro Symonenko received only 4.97% and 3.54% of votes in the 2004 and 2010 presidential elections, correspondingly.

Then Ukraine had the Orange Revolution in 2004. The 2004 presidential election will always be a historical landmark of Ukraine's state-building. After all calamities surrounding rigged 2^nd round and its rerun in the late December, a nationalist liberal pro-Western candidate and former PM Viktor Yuschchenko won the election with 51.99% of votes. Once again the same swing Central provinces gave Mr. Yushchenko so needed handicap. The incumbent PM Viktor Yanukovich lost not only election but also his PM position. Furthermore, the authoritarian glitch in the Kuchma administration tarnished former PM's political reputation significantly. While Mr. Yanukovich received 44.25% of votes in 2004, his popularity dropped to 35.3% votes in the 1^st round of the 2010 presidential election. Nonetheless, Mr. Yanukovich received a ten-percent lead over the incumbent PM Tymoshenko. The incumbent president Yushchenko (2005-2010) who became ultra-nationalist closer to the end of his term received only 5.45% of votes. It's actually very interesting fact about the 2010 presidential election that for the first time in the recent political history of Ukraine the incumbent president did not make it to the 2^nd round. On the other hand, the 2^nd round offers Ukrainian voters a cliché choice between two PMs: the former and the incumbent. Once again, what's the difference?

From UkraineWatch

Nonetheless, I am sure that the final results of the 2010 presidential election will give us more fodder for further discussion of Ukraine's political institutional development. The key to a victory in the 2^nd round of this presidential election is a candidate's ability to capitalize on constituencies in the swing Central and Southern provinces. But I guess it's too late to give this piece of advice, ha!

From UkraineWatch

From UkraineWatch

Assorted Links: 2010 Ukraine’s Presidential Election

1. Ukraine's Presidential Election goes Twitter! If you are really interested in following Ukraine's Presidential Elections on Twitter, here is a site: http://www.electua.org/. However, I should warn you that most twits are in either Russian or Ukrainian.
   
2. The Jamestown Foundation Blog has a very interesting post about the supposedly rising popularity of the technical presidential candidate, Mr. Tihipko. Tammy Lynch asks the following question: "Can Tihipko Spoil Tymoshenko's First-Round Party?". My answer is "NO" unless all reputable public opinion surveys had a really awful margin of error.
   
3. Wikipedia has a page devoted to the 2010 Ukraine's Presidential Election. This page has a nice summary table that demonstrates a change in public support of main presidential candidates. Btw, I've never heard about the Research and Branding Group before. Have you? But it seems to be a very popular research organization in this particular table.
   

   
    

Orange Forever!

I've received a letter from Bishop Paul Peter Jesep, U.S. Spokesperson for His Beatitude Metropolitan Myfodii of Kyiv and All Ukraine, from Ukrainian Autocephalous Orthodox Church Kyiv-Patriarchate. With his permission, I post it here. It's a very interesting reflection on political beliefs in the American-Ukrainian community:

"Ukraine's Orange Revolution lives! The country's cultural and spiritual reawakening shows that requiems and obituaries are premature. President Viktor Yushchenko has been criticized for his political and economic stewardship. Some of it justified. Although not yet recognized, his legacy is positive and significant. He is the first Ukrainian president who embraced and encouraged the country's distinct Eastern Slav consciousness. Yushchenko challenged his countrymen, Jew, Muslim, Christian, and non-believer to ask who they were as one Ukrainian nation. He reached out to Jews and Muslims as no leader has before to underscore their contributions to Ukraine. Ultimately, a country's soul is defined by its artists, writers, composers, and the language its people speak. Although unable to show a deft touch in educating those who identified with Russian culture in eastern Ukraine or the Crimea, Yushchenko nurtured a national reawakening. He did so, in part, at the expense of bread and butter issues during a worldwide recession.

 

Yushchenko showed no sympathy in dealing with Russia's national identity crisis. What does it mean to be Russian without Kyiv, the Mother of All Russian cities? His indifference fueled Moscow's ongoing efforts to marginalize Ukrainian culture, language, and history in the international media. According to Russian President Vladimir Putin, Ukraine is nothing more than a breakaway province. He incorrectly insists that it never existed as a nation prior to the breakup of the Soviet Union. Ukraine has a thousand year history. Its final incorporation into Russia occurred when Empress Catherine finally defeated the libertarian, free-spirited Ukrainian kozak state with its rudimentary democratic structure. Spiritually, there can be no Russia without Kyiv. Culturally, politically, and intellectually Moscow cannot let go of Ukraine because to do so leaves its own national identity in question. The Eastern Slavic soul beats in Kyiv, not Moscow, Novgorod, St. Petersburg, or anywhere else in Russia or Belorussia.

 

It's ironic that Viktor Yanukovych, the Moscow supported presidential candidate from eastern Ukraine, recently told the Associated Press that "the development of . . . democratic principle in our country" was a "price . . . too great." Yet Yanukovych benefits from the very freedom he criticizes in his campaign. During the Associated Press interview Yanukovych also mocked the Ukrainian language as "gibberish" and the messiness of democracy as a "variety show." He vows commitment to a Leninist "rule of law" and the restoration of the Russian language to its superior place.

 

Regardless of who is the country's president, the sky is blue if Ukrainians in the country and those in the Diaspora work to cultivate the Ukrainian language. If young artists, writers, dancers, musicians, composers, and Christian and non-Christian spiritual leaders in Ukraine nurture the Ukrainian-Eastern Slav soul then the wheat fields are golden. President Yushchenko opened the door. Complacency will shut it. The Orange Revolution is not about personalities. It is about ideas, values, and principles. It's about the culture of a people. Ukrainians are the only Eastern Slav people with the courage to wrestle with the challenges of democracy. Democracy is not about convenience. It is about liberty.

 

The Orange Revolution can and will live on so long as patriots and those in the Diaspora recognize the critical importance of promoting Ukrainian art, culture, language, and literature. It will not matter who is president so long as ordinary Ukrainians in Ukraine and the Diaspora work to nurture, preserve, and further the country's distinct heritage."

Ukraine’s Government Begs the IMF for Help

The IMF gave Ukraine $16.4 billion in the beginning of 2009. But Ukraine got only $11 billion before the IMF got fed up with a political mess in the Ukrainian parliament and government spending unleashed by the Tymoshenko government. President Yushchenko made things worse when he sent the Minimum Wage Bill to the floor of Ukraine's parliament. However, Ukraine's president can only propose a bill while its destiny solely depends on a will of a whimsy parliament. Of course, the minimum wage bill got stock in the parliament because the Tymoshenko government directed all its attention to fighting the phantom outbreak of swine flu in Ukraine. Now we all know what kind of outbreak it was (see previous posts).

This week the Tymoshenko government sent its representatives, including two Deputy Ministers of Finance, Ihor Umanskiy and Anatoliy Myarkovsiy, to the IMF in Washington, D.C., USA. Now Ukraine's government asks just for two billion dollars from the rest of the frozen IMF loan. I have a very obvious question: What for? The government received $11 billion earlier this year and where did it go? Ukraine's president Viktor Yushchenko asks prime-minister Yulia Tymoshenko the same question. The Ukrainian economy still experiences the deepest recession among other FSU countries. What's going on with the government accountability in Ukraine? In the meantime, a date of the first round of the 2010 Presidential election is approaching.

 

Assorted Links: Ukraine’s Phantom Outbreak of Swine Flu

Ukraine's short history of political campaigns has seen a lot. But political and economic events surrounding a phantom outbreak of swine flu shocked not only Ukrainians but also the rest of the world.

A free-lance journalist Julia Ioffe has an excellent piece in the Foreign Policy with a great quote from Taras Berezovets, a senior campaign adviser for Ukraine's prime-minister Yulia Tymoshenko:

"We had to create a phantom and then have a white knight riding in to save the day," Taras Berezovets, a senior campaign advisor for Tymoshenko's BYuT bloc, told me (Julia Ioffe) in a Kiev restaurant, confirming widespread suspicions among Ukrainian journalists. According to a campaign adviser to Yulia Tymoshenko, the Ukrainian prime minister who is also a presidential candidate purposely inflated fears of an ongoing swine-flu epidemic to aid her presidential run."

The Washington Post's Philip Pan has another great article about idiocracy surrounding H1N1 outbreak in Ukraine.

Finally, the Slate's Anne Applebaum discusses a chain of events emerged in a response to Ukraine's panicking about the phantom outbreak of swine flu.

Face Mask and Price Control: Ukraine’s Government Fights off H1N1 Virus

Over the last two weeks, Ukraine's Prime Minister Tymoshenko provided a classic example about when price controls and government misinformation could go awry. The government spread panic among Ukrainians by announcing that the country had an outbreak of swine flu in the Western regions. It stated that soon enough the whole nation would be infected with the epidemic and deadly swine flu. In all major TV channels, prime minister told the nation that "the world sent the second greatest trial, after the global financial crisis, to Ukraine and that the nation was not ready to cope with the new disaster". Even Ukraine's president Yushchenko who usually avoids populist decisions wobbled under political pressure and asked for emergency financial and medical aid from the European Union and other countries. In another televised address to the nation, the prime minister announced a three-week recess in schools and universities. The government also banned any public gatherings during the same time period.

From UkraineWatch

Can you guess what happened next to a demand for all medical supplies that could somehow help to fight off the imminent virus? The demand for medicals supplies simply skyrocketed. Shelves of local pharmacies were emptied within two days. Ukrainians bought everything starting from face masks to herbal supplements to flu medications. The price of face masks went up three times across the country until it became impossible to find it in the stores. Some small-scale apparel producers quickly added a new production line to meet the surge in demand. Several boutique stores even tried to add chick to the dismal face masks by putting funky designs on them including a happy face. The government officials, that caused the panic in the market in the first place, responded with an old-school approach by imposing price controls on all necessary medical supplies and face masks. Ukraine's government even went further by threatening entrepreneurs with arrests if they try to make an extra buck on the "swine flu panic". The Leviathan of the Ukrainian government was unleashed. All imaginable regulatory agencies ranging from anti-trust agents to fire-control inspectors swamped local pharmacies and markets to enforce this crazy edict. Subsequently, many privately-owned pharmacies cut down their working hours and even shut down in order to avoid conflict with ravaging regulatory agencies. Even black-market entrepreneurs scaled down their operations to avoid any interaction with law enforcement. Could you guess what happened next? The anti-market behavior of the Ukrainian government proved the law of unintended consequences once again when all medical supplies vanished almost overnight.

Unfortunately, the story does not end there. When fidgety consumers faced the empty shelves in the pharmacies, they retreated to all kinds of substitute goods. Traditional Ukrainian medicine prescribes garlic, onion, and lemon to combat the cold. The demand for these goods rose and their prices doubled. In Kharkiv, the second largest city of Ukraine, the price of garlic skyrocketed from 5 hryvnia per bundle to 55 hryvnia (approximately, 7 USD). The government stepped in again. The government accused retailers of making windfall profits on the virus outbreak. However, a public outrage spurred by several public whistleblowers such as Ukraine's celebrity doctor Dr. Komarovksy made the government back away from another price control. The World Health Organization made an official statement saying that Ukraine did not have a very serious H1N1 outbreak. The government rushed to announce that its "quarantine measures" prevented the outbreak of swine flu. Indeed, everything seems to be back to normal though it is still hard to find lemons in the grocery stores. Many Ukrainians also wonder what they should do with the surplus of home medical supplies. Everyone seems to realize the government caused the panic in the markets in the first place by misinformation, and then they try to correct the markets by using anti-market policy instruments. And you know what happened.

Thus, after two decades of post-socialist development Ukraine's government seems to misunderstand its role in a market economy. Sequences of policy lapses like these represent the importance of understanding basic economics, the law of unintended consequences, and resisting populist pressures. Otherwise, the government hurts its own people instead of protecting them.

Assorted Links

KyivPost has a very interesting article about who stands behind the major Ukrainian politicians in the upcoming presidential elections:

A lot of money gets raised, made and spent during elections. In Ukraine, with an election law that does not cap spending by candidates, major campaigns are expected to cost from $60-$70 million in the case of former Verkhovna Rada speaker Arseniy Yatseniuk and up to $100-$150 million or more for the two front-runners, ex-prime minister Victor Yanukovych and Yulia Tymoshenko, Ukraine's current premier.

Swine Flu Infects Ukraine’s Politics

It's been in the news since last week that Ukraine has an outbreak of swine flu aka H1N1. Russia, Poland and other neighboring countries overreacted by limiting entrance of Ukrainians across borders. Ukrainian politicians overreacted even more than their foreign peers. Whether the outbreak of swine flu had place, the whole governance system simply folded under exigent circumstances as a house of cards touched by a slight breeze. Politicians did everything what they should not do. Instead of protecting its citizens, the Ukrainian government spread panic and fear among the public.

From UkraineWatch

First, it is very interesting that the government was solely responsible for a panic among the public. The Ukrainian government misinformed citizens about H1N1 outbreak. The World Health Organization says that there was no outbreak of swine flu in Ukraine. The government spread a panic among population when Prime Minister Tymoshenko and the Health Minister announced that Ukraine's Ministry of Health registered a record number of people infected with swine flu somewhere in Western Ukraine. However, the World Health Organization has not confirmed an outbreak of swine flu in Ukraine yet! Moreover, a number of deaths from pneumonia that is a complication of seasonal flu was very far from a critical level. Since "the outbreak of H1N1 flu" (October 29, 2009) Ukraine that is a nation with 46 million people has lost 213 people from pneumonia. Only six cases of the H1N1 infection were confirmed. Several medical doctors have already criticized the Tymoshenko government for misinterpreting data and misinforming the public. The most adamant critic of the government incompetence is Dr. Komarovsky who went on several TV shows to calm down Ukrainians and dissolve a myth about the H1N1 outbreak. The government has already changed its position on the epidemic H1N1 situation by announcing that its preventive measures have already reduced the number of flue infections at least by a factor of four.

Second, instead of H1N1 outbreak, we witnessed, perhaps, a final break in the Orange coalition. When Ukraine's president Yushchenko rushed to ask for medical supplies from Europe in order to fight the nonexistent epidemic swine flu, Ukraine's prime minister Tymoshenko ridiculed him for relying on foreign aid instead of doing something himself. Mrs. Tymoshenko promised Ukrainians that she would provide masks for free at each mobile office of her party across country. President Yushchenko retaliated by filing a law suit to the Supreme Court against the Tymoshenko government for failing to report data on a spread of seasonal flu and holding public rallies during "the outbreak of H1N1 virus".

Third, Mrs. Tymoshenko blatantly used "a fight with swine flu" for the sake of her presidential campaign. She proclaimed a fight with swine flu "the second great trial given by the world to Ukraine after the world financial crisis". She made it clear that H1N1 "outbreak" is her number 1 priority in the ongoing presidential campaign. Mrs. Tymoshenko went to war with the swine flu with such zeal and vigor as Miguel de Cervantes' heroic knight Don Quixote who rode his horse to fight windmills. I guess the WHO officials were really touched by the brave heart of Mrs. Tymoshenko that they reconsidered the status of H1N1 in Ukraine to "assumed outbreak". WOW! Well, it's hard to blame the WHO for still being shy when only six person died with a confirmed H1N1 virus from 250,000 "assumed" infected in a country with 46 million people. I am not a doctor, but it doesn't even look to me as a potential outbreak.

Why and what happened to Ukraine's government? I don't really know. But "H1N1 outbreak" shows once again a "professionalism" of Ukrainian politicians. The "outbreak" also demonstrates that what government can do when it is a group of incompetent self-interested individuals delegated with executive and legislative power and driven by the electoral campaign. This kind of government can't do anything good!

Russia’s Gas and Ukraine’s Political Mess

Russia's Prime Minister Vladimir Putin typically rushed to accuse Ukraine of failing to make monthly payments for Russian gas. Mr. Putin even suggested EU to lend Ukraine at least $1 billion to help it pay for gas supplies.

BusinessWeek's Lynn Berry quotes Mr. Putin:

"Let the Europeans throw in a lousy billion," he said in televised remarks after talks with Danish Prime Minister Lars Lokke Rasmussen.

"Why have they gotten so stingy down there? Let them get something out of their pockets," he said, in typically colorful language. "They have money, too."

Lynn Berry also writes that Putin first raised the gas payment alarm last Friday, when he said that Ukrainian Prime Minister Yulia Tymoshenko had warned him that Ukraine's president, Viktor Yushchenko, was making it difficult to pay the gas bill. Once again Mr. Putin can't help himself to stay neutral when it comes to the Ukrainian politics. Btw, Mrs. Tymoshenko whose government runs the state-owned natural gas company NAFTOGAZ is responsible for Russian gas import and payment. President Yushchenko has nothing to do with this. However, the upcoming presidential elections create more benefits from any black PR. Did I mention that the Tymoshenko government bans to use black PR against prime minister?

Once You Are Bailed Out, You Don’t Come Back!

One of the fundamental principles of economics tells us that people respond to incentives. In a free market economy, profit that is definitely the best incentive directs business toward activities that increase wealth. However, the 2008 recession showed that the Ukrainian government as well as the American government had different take on the key element of economics. I am taking about bailing out.

The Tymoshenko government bailed out couple private banks by purchasing around 90% of stocks in each privately-owned bank. For instance, state bough out Rodovid Bank. Everything seemed to be OK until a new announcement made by the Rodovid bank's administration. Rodovid needs additional $1 billion to restructure its debt. Ernst & Young will supervise Rodovid's debt restructuring. It looks like the Tymoshenko government is really good in turning any lucrative business in a bankrupt. I still wonder how did the government manage to let the state-owned oil company NAFTOGAZ go bankrupt?

The main problem is not even bailing out again. Now a main issue is that the Tymoshenko government has no money to finance a bail-out. A money-printing stunt thrown by the National Bank of Ukraine has already inflated domestic money supply to all time high of the last decade. Inflation is rampant in Ukraine! Moreover, the government budget resources are almost exhausted. At present moment, the government budget has less than $100 million at its disposal that is even lower than the dramatic 1998 level. Russia's prime minister Putin has already rushed to reprimand Ukraine's president Yushchenko for defaulting on payments for Russia's natural gas. Wait a sec, what does Ukraine's president have to do with this? Ah, it must be the politics.

So what does the Tymoshenko government do in search of external financial resources? The government announces sales of government bonds. The Tymoshenko government sells 6-month Ukraine's government bond with 30% yield! Even Brazil is more modest with 8.76% yield on its 6-month government bonds. Many domestic and foreign experts express their concern that the Ukrainian government can run a Ponzi scheme. I agree that it looks really weird.

Ukraine’s Gambling Industry Goes Online

Ukraine's Prime Minister Tymoshenko has already built a reputation of anti-market politician. Few Ukrainians were surprised when the Gambling Bill introduced by the Tymoshenko government went into effect last month. In brief, this bill outlaws operations of gambling industry within metropolitan areas except in the specially designated zones for gambling. The gambling zones will be established in suburbs farthest from the downtown. It's not clear how the government will regulate a size of the gambling zones. Will all gambling business be able to fit in these still-to-be-built zones? Neither anybody knows whether owners of casinos will be compensated for business liquidation and relocation. By the way, who is going to build the gambling zones? There are too many unknown variables in this equation.

Why would you do it at all when Ukraine's economy is going through a deep recession? Don't you need to support business instead of shutting it down? What about other jobs which are related to the gambling industry? Btw, the gambling business generates more than 30% of local tax revenues in Ukraine. For instance, tax revenues from the gambling business made up 60% of a city's budget in Kharkiv, the second largest city of Ukraine. However, Mrs. Tymoshenko proudly uses the Gambling Bill in her presidential campaign. One of her campaign ads says: "Gambling Business is Outlawed: She (Mrs. Tymoshenko) Works!"

But Ukrainian entrepreneurs strike back! The owners of gambling business found a way to keep their operations at the old establishments. The entrepreneurs swapped casino's license for internet café's license. The former casinos became the internet cafés. Brand new desktops with internet access replaced slot machines and poker tables. Now the former card dealers introduce themselves as IT consultants. Btw, you can still buy buzz there. So how does it work? It's simple. You just play the same games online. Instead of buying chips, you deposit $100 to your internet-based account and then play black jack, throw a dice and so on. The owners of "internet cafes" say that after all they benefited from the Gambling Bill because they found ways to cut down their costs. One, internet café license is cheaper than the gambling license. Two, Ukraine's Tax Administration classifies internet café as a sole proprietorship for tax purposes so that the entrepreneurs just pay a flat income tax of 300 hryvnia ($40) regardless of their total revenues. Three, they also cut down on their labor cost because the internet café needs much fewer workers than a small-scale casino. Overall, the Gambling Bill is a really bad idea. It definitely hurts a gambling business that is one of the major sources of tax revenues in Ukraine. So far the effect of the government regulation was partially cancelled out by emergent entrepreneurial response. Let's hope that the internet café business is not the next on the Tymoshenko list.

From UkraineWatch

It’s a Final Countdown

For the fourth time in its history, Ukraine will have the presidential election. It will be less than in 90 days. The main competition will be between both pro-Russian politicians: prime-minister Tymoshenko and POR's front-runner Yanukovich. The Central Election Committee of Ukraine estimates that the government will have to spend at least $160 million on the elections. A registration fee for each presidential candidate is $314k.

According to the most recent public opinion poll SOCIS, the most popular presidential candidates are 59-yo Viktor Yanukovich (28.7%), 48-yo Yulia Tymoshenko (19%), and 35-yo Arsenyi Yatseniuk (8%). Ukraine's president Viktor Yushchenko enjoys only half of public support of another Orange Revolutionary, Yulia Tymoshenko. In terms of political ideology, Mrs. Tymoshenko represents the left-wing of Ukrainian politics, while Mr. Yanukovich poses himself as the right-wing and Mr. Yatseniuk is in the center. If we use analogy with the American politics, Ukraine's prime-minister is a socialist democrat where Mr. Yanukovich is a republican and Mr. Yatseniuk is independent.