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ZERKALO NEDELI: EARLY ELECTION IN UKRAINE - DANGEROUS EXPERIMENT
This article does not assess the behavior of major Ukrainian political forces and their leaders as much has been and will be written about that. My point is that these all-versus-all political games obscure important economic problems which tend to aggravate underlying conditions of political instability.
The preterm parliamentary election [slated for December 7, 2008] is a dangerous experiment fraught with serious economic consequences. Every preterm election is a defeat of economic logic by the force majeure of political expediency.
Firstly, the previous preterm parliamentary election in 2007 took place when the global environment was quite favorable for Ukraine and when the national economy was growing steadily (even though inflation was growing too). It was when many experts, including the author, said that the Ukrainian economy was becoming less susceptible to political shocks. The 2008 election was announced during a global financial crisis which inevitably leads to economic recess. Nobody can say how deep or how long this crisis will be, but it is already evident that Ukraine has been hit by the first wave of this crisis: external financial resources are getting more expensive; foreign investors are in no hurry to confront growing risks and a number of investment projects are being curtailed; the national stock market is “sagging,” with auctions being suspended more and more often.
The second wave – global recess – is approaching: it means lower demand for Ukrainian exports and higher competition for solvent consumers on world markets. On top of that there are Ukraine’s latent economic problems that tend to aggravate.
How can Ukraine respond to sudden shocks if its government is in the balance, its president has no economic instruments a priori, its parliament is out to polls, and the only legitimate body is the central bank?
Secondly, since 2004 there have been no structural and institutional reforms in the country. For all this time Ukraine has been demonstrating a strange phenomenon of “growth without reform,” but the potential of such growth has been practically exhausted. Now, even though economic development continues under its own inertia, the country is accumulating lag. Due to the absence of reforms Ukraine is lagging behind other countries as a competitor. Remarks like “they are so strong and smart but are in deep water too” are irrelevant.
Of course, Ukraine is not strong enough to reverse global economic trends, but a reformed economy has more capacity for cushioning negative external impacts and for post-crisis restoration. Instead, frequent elections leave no place for strategic reforms.
Thirdly, an unreformed system needs more and more money to keep functioning. The most evident example is the system of social security: expenditures are growing but the principles remain the same. So does the quality of service. The longer reforms are delayed, the more they will cost.
This concerns Ukraine’s infrastructure as a whole. It proves over and over again that leaps and bounds do not work and that political instability is especially detrimental to long-term infrastructural projects (including the Euro-2012) and partnership between authorities and private business.
Fourthly, Ukraine is part of the globalized world, but being in a state of permanent political uncertainty it has nothing to offer its partners but lip service and even provokes some of them to exert direct economic and political influence over it.
It is more than dangerous to use the gas issue as a campaigning tool now that the gas price talks with Russia are complicated by the global financial crisis.
Fifthly, yet another preterm parliamentary election in this country demonstrates the utter degree of personalization of Ukrainian politics. Under such circumstances it is impossible to look for constructive solutions because any judgments are immediately referred and tied to individual persons. Any problem boils down then to the question of who plays for whom or against whom. Yet, the people need to see a definite course, albeit personalized.
This election campaign reduces the people’s trust in authorities, the economic agents’ trust in the rules set by authorities, etc. Without such trust it is impossible to consolidate society and carry out unpopular reforms. And it is trust that “leads to prosperity,” as Francis Fukuyama convincingly proved.
People trust only a strong state – i.e. authorities that are able to consistently meet and protect their interests irrespective of the government’s or parliament’s composition.
Sixthly, this election is most likely to victimize the 2009 national budget: the lawmakers simply have no time to consider and adopt the budget bill. When adopted during an election race, it can hardly be perfect, but its absence is not a good sign to economic agents in or beyond the country under conditions of economic and political uncertainty.
Seventhly, elections cost a lot of money, mostly cash. As the amount of liquid assets is reducing, such a “volley” emission of cash may enhance fluctuations of prices and currency exchange rates.
Eighthly, a period of economic and political instability is the best time for speculators on the currency and other markets, raiders, and shady deals. Besides, politicians get off easily by blaming economic problems caused by their mistakes on elections.
And finally, there is a question: how should the prime minister (regardless of different attitudes toward her) feel in this state of permanent political uncertainty, even if she is earnestly resolved to carry out reforms? Since the Orange Revolution, not a single Ukrainian government has stayed in office for more than a year. This is one of the objective reasons for their populist policy. Laws demand that the government increase spending on a host of social programs while economic logic demands the opposite. The head of government always remains a hostage to the unreformed economy and political uncertainty. There is one more question: even if this government does launch reforms, will it follow through?
The conclusion is not very original: numerous external and internal challenges demand political consolidation but not political uncertainty. The political leaders who succeed in such consolidation will be thanked and remembered. And this preterm election is a dangerous political experiment.
Igor BURAKOVSKY
“Zerkalo Nedeli”, Ukraine’s International Social Political Weekly, № 38 (717), 11-17 October 2008
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