Like Russia’s, Ukraine’s economy has been shrinking throughout this decade. The contraction has accelerated over the past six months, since the crash of Russia’s ruble destabilized Ukraine’s none-too-steady finances. Measured against 1998 levels, gross domestic product fell 3.3 percent in January and 5.1 percent in February.
The left-of-center parliament, it appears, will not allow the government to implement consistent economic policies, regardless of what policies the government proposes. On March 23 Prime Minister Valery Pustovoytenko announced a “special economic management” plan, a mish-mash of higher taxes, investment incentives, asset sales, interest-rate controls and monetary expansion, all intended to fund the government and pay off the country’s huge arrears in wages and pensions. The parliament swiftly rejected the asset sales, turning down the draft privatization program for the fourth time. It also lowered excise taxes on fuel and, in a bizarre move for representatives of workers and peasants, repealed a tax on mobile phones. The parliament’s approach to public finance is like the debtors-prison approach to bankruptcy: We shall punish the government by denying it income until it pays what it owes.
What the parliament did not kill, the creditors did. Pustovoytenko repudiated his own program of monetary expansion within forty-eight hours, after meetings with Deutsche Bank. Currency emission, he said, will not be a remedy for wage arrears.