With each passing day, Ukrainians' surprise and dissatisfaction with the new government grows. It's almost a year since the events on the Maidan began, and suspicions that the people have been cruelly deceived are growing stronger. Ukrainians increasingly see that one set of oligarchs has been replaced by another, hiding behind yet another set of beautiful slogans. Moreover, it appears that these new-old oligarchs were behind the events on the Maidan.
What did Ukrainian citizens gain after demonstrating their courage and bravery during the winter events? Nothing but problems that continue to pile up. First and foremost, a devaluation of the national currency unheard of since the early 90s. Since the beginning of the year, the hryvnia has devalued by 66,7%. This is the highest rate of any currency in the world. Ukraine "managed" to outpace such underdeveloped countries as Ghana and Argentina. Their national currencies devalued by 62% and 43%, respectively. The authorities explain this by the fact that, firstly, to receive an IMF loan, they had to fulfill the condition of allowing the hryvnia to float freely, so that it would supposedly eventually stabilize on its own. Secondly, they blame everything on the war in the east. Although, as experts have already noted, there is also a war going on in Syria—and has been for a long time. But the national currency there has devalued by only 21%.
So, there's no point in shifting the blame. Economic experts emphasize almost daily that the government and the leadership of the National Bank are to blame for the hryvnia's sharp decline. Instead of acting as a regulator, as mandated by the Ukrainian Constitution, the National Bank is doing nothing. All it does is announce that the hryvnia exchange rate will soon "return" to 12 percent, and urge the public not to panic and hoard foreign currency.
Meanwhile, the current government and oligarchs directly contributed to the hryvnia's surge. Former NBU Governor Stepan Kubiv allocated funds to several financial institutions in April as part of a program to support the domestic banking sector. Among those that received the largest refinancing was Mykola Lahuna's Delta Bank. During Yanukovych's presidency, this bank distinguished itself by siphoning off tens of billions of hryvnias of Naftogaz debt, buying up banks, and dramatically expanding its assets. So why did the "Family" bank receive the money? The answer is simple: its owner is close to Kubiv. But the largest slice of this pie went to PrivatBank, owned by Ihor Kolomoisky, the current governor of the Dnipropetrovsk region, known for his fraudulent dealings. To date, PrivatBank's total refinancing has reached $1,1 billion.
But the owners of these banks didn't use this money to issue deposits or pay off interest. They invested it in the foreign exchange market. Thanks to speculation in the buying and selling of foreign currency, the funds allocated from the state budget generated large profits for the bank owners, which led to the hryvnia's collapse in the spring. The NBU watched everything silently, as Kubiv, as media reports reported, also profited.
Moreover, Ihor Kolomoisky, who suffered significant losses due to the annexation of Crimea and the war in Donbas, is currently awaiting the next refinancing tranche of 10 billion hryvnias. It's unlikely he'll use it for its intended purpose, assuming, of course, he receives this tranche. It's possible the money will either end up back on the currency market or be transferred to offshore accounts in Israel, Switzerland, or Cyprus (Kolomoisky, incidentally, is a citizen of both Israel and Cyprus). The bank will be artificially driven into bankruptcy. In short, it's a well-known scheme for generating large profits.
Regarding the hryvnia's "free float," the Cabinet of Ministers and the National Bank of Ukraine (NBU) claimed that this would lead to a decrease in imports and an increase in exports. However, the balance between imports and exports is difficult to rebalance, as Ukraine produces few goods for export, and the economy relies on the dollar, not the national currency. First, so-called de-dollarization was necessary, and only then could the hryvnia be freed. This also contributed to the hryvnia's devaluation. Remarkably, the government recently announced that Ukraine had increased its foreign trade surplus. In other words, exports exceeded imports. But this is only at first glance. Economist Oleksandr Okhrimenko noted an interesting aspect. According to the State Statistics Committee, imports amounted to $32,5 billion, while according to the NBU, they amounted to $37 billion. He believes that the $4,5 billion difference is due to foreign currency being transferred abroad, but the goods were not delivered. "In other words, this is a fraudulent scheme to funnel foreign currency abroad through fictitious import contracts. It's no surprise that Ukraine is experiencing a catastrophic shortage of foreign currency," he writes on his blog. "It turns out that this whole game of hryvnia devaluation and foreign trade surplus is simply a sham. Some of the currency from exporters simply doesn't reach Ukraine, while the majority of it is actively flowing out of the country under the guise of imports."
Here's some simple arithmetic. The devaluation of the national currency led to households withdrawing $502 million in foreign currency deposits from banks in August 2014. Furthermore, households bought $201 million more in foreign currency than they sold to banks. (Incidentally, in August 2013, Ukrainians placed an additional $121 million in foreign currency deposits with banks. Moreover, in August 2013, they placed more hryvnia deposits, as they believed in the stability of the banking system.) The outflow of foreign currency from the banking sector is accelerating. As of September 1, 2014, the total amount of household foreign currency deposits was only $15,7 billion, which is $7 billion less than a year earlier. Over the past year, Ukraine has lost 30% of its household foreign currency deposits and continues to lose them.
A number of banks are now refusing to pay out deposits at all, either in hryvnia or foreign currency. Some banks are only paying out interest, offering to renew the deposit principal for a new term. Some are unilaterally changing the terms of deposit agreements to the detriment of clients or introducing fees for withdrawing funds after the deposit has been redeemed. And the NBU is turning a blind eye to this.
Experts emphasize that Ukraine is on the brink of default, and the IMF loans the Cabinet of Ministers is relying on won't save it. The current dollar exchange rate of almost 14 hryvnias, experts say, isn't the limit; it could rise to 15-20 hryvnias.
The domestic economy is currently in a dire situation. Prices for food and essential goods have risen by 20%. Gasoline and diesel fuel prices have risen by 50-60%. The sharp devaluation of the hryvnia has practically pushed the banking system into technical default. Some foreign companies are unable to recoup their investments, and many investors are leaving the Ukrainian market.
Moreover, Ukrainians have lost confidence in the banking system. While the exchange rate previously hryvnia-to-hryvnia remained stable for several years, a black market for foreign exchange is now thriving, exploiting the profits of unscrupulous bankers. Even a difference of one hryvnia provides currency speculators with a tidy profit.
Small and medium-sized businesses—the foundation of any democratic state—are on the brink of ruin. Meanwhile, large entrepreneurs—the so-called oligarchs—are once again profiting. Fitch Ratings has downgraded Ukraine's national currency rating from B to CCC. This is the so-called highly speculative level, a recognition of serious problems in the country's economy.
Meanwhile, they continue to try to pull the wool over Ukrainians' eyes with the so-called successes of the new government—for example, the faking of a fight against oligarchs. Recently, the Cabinet of Ministers reported that it was returning the Irshansk and Vilnohirsk Mining and Processing Plants to state control. The mining and processing plants were previously leased by Crimean Titan, owned by Group DF owner Dmytro Firtash, one of the wealthiest Ukrainians close to Yanukovych. In reality, however, the future of the plants remains unknown. Will they end up leased to other oligarchs? Specifically, to Ihor Kolomoisky, the owner of the Privat Group, who is eyeing the Vilnohirsk Mining and Processing Plant in Dnipropetrovsk Oblast. Or to Serhiy Lyovochkin, the former head of the Yanukovych administration, who is playing an increasingly prominent role in Ukrainian politics. Today, many consider him an oligarch and the new puppet master of Ukrainian politics. He is close to President Petro Poroshenko and finances several party projects: UDAR, Lyashko's Radical Party, and Anatoliy Hrytsenko's Civil Position.
Another "victory" for the new government: the signing and ratification of the Association Agreement between Ukraine and the EU, which had been fully drafted by its predecessors. After much agonizing, parliament finally ratified the Agreement, although it was signed on June 27. Representatives of the current government assure that domestic goods will now enter European markets duty-free. Experts are less optimistic. The fact is that Ukraine won't see full association for almost a year and a half—the free trade zone was postponed until December 31, 2015, at Russia's request. During this time, the Kremlin allegedly wants to make over 2000 changes to the agreement. So don't be too quick to celebrate.
As expert Igor Burakovsky notes, Ukrainians will only feel the positive impact after the free trade zone is established. Okhrimenko, for his part, notes that the creation of the free trade zone entails the gradual abolition of import duties on Ukrainian goods into the EU and on European goods in Ukraine. As is well known, the EU unilaterally voluntarily abolished some duties on Ukrainian goods on May 15, 2014, and has now promised to extend them until October 1, 2015.
"This is a good gesture, but ineffective, because, after lifting the duties, the EU forgot to lift quotas and restrictions on the import of Ukrainian products. As a result, Ukraine has indeed increased its sales of cast iron to the EU because it no longer has to pay the 1,7% duty. However, Ukraine cannot supply metal products to the EU because they do not meet European standards. The same applies to food products. Ukraine can supply corn to the EU, but it cannot supply cookies until Ukrainian cookies meet European standards. And so it is with many other products," he emphasizes.
Even with the promised winter lustration, the authorities dragged their feet until the last minute. The law was voted on by the people's servants behind closed doors and passed only on the third attempt. As the deputies themselves noted, lustration was necessary, but 400 amendments were introduced into the bill, which no one really read or considered. Therefore, the outcome could be as follows: they wanted the best, but it turned out the same as always. The law will only target minor figures or even innocent people. Something similar happened after Viktor Yushchenko came to power, when he dismissed 18 mid-level officials for allegedly collaborating with the "Kuchma regime." As a result, the vertical power structure was completely destroyed, with tragic consequences.
The feeling of déjà vu with the events of ten years ago is very strong. The previous government, dubbed the "criminal panda" by the then opposition, sought to force the oligarchs to pay taxes, as is expected in the entire civilized world. But they didn't like this, so they organized the Maidan. It's no coincidence that, according to one version, it was Lyovochkin who facilitated the clearing of the student Euromaidan by security forces, twisting Yanukovych's words: "Cleanse the Maidan." This sparked the confrontations that led to the well-known consequences.
Ukraine is currently ruled by an oligarch, President Petro Poroshenko, backed by Ihor Kolomoisky and Serhiy Lyovochkin. The parliamentary elections on October 26, according to Poroshenko, will be a kind of lustration for politicians. True, the new Verkhovna Rada will not include the Party of Regions or the Communists, perhaps only a few of their representatives. However, the new and old oligarchs will bring many of their representatives into parliament through the party lists of the most popular parties, who will lobby for their interests. Ukrainians, as always, will be left with nothing. And even worse.
More and more experts are predicting a return to the difficult years of the 90s, when Ukraine's economy will be focused not on production and trade, but solely on currency speculation. Runaway inflation will lead to complete impoverishment and famine. Moreover, the coming winter promises to be cold due to the conflict with Russia and Gazprom, as underground gas storage facilities don't hold enough gas to heat all Ukrainians, and reverse gas supplies from Poland, Slovakia, and Hungary are unlikely. If Gazprom cuts their supplies, they will, accordingly, refuse to supply us with gas. So the 90s may seem like a piece of cake. At least homes were warm then. Whether this is what thousands of Ukrainians stood and froze on the Maidan for is a rhetorical question. For now, it appears they stood for the benefit of the oligarchs.
Special Correspondent
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