kraine.

Ukraine - Standard of Life Approaches its Lowest Point

On 8th of December, 1991 Russia, Ukraine and Belarus signed an agreement according to which a new political entity appeared on the territory of the USSR - the Commonwealth of Independent States (CIS). The USSR stopped its existence as a subject of international legal system and as geopolitical reality. From this moment and on the USSR is referred to as xUSSR. It was an event of paramount historical meaning not only for the former USSR republics but for the world as a whole. Of course, disintegration of Soviet Empire has started much earlier, it was inevitable event in historical process. The first and the last President of the USSR Mikhail Gorbachov tried to find a way for preserving existence of the USSR but it was hardly possible in that situation. Never stopping wheel of history easily destroyed all (very often poorly supported) attempts. Economy of the USSR completely based on the command-and-administrative system of ruling started its final decline at the beginning of 1980s. And a real economic disaster for CIS countries started after disintegration of the USSR that produced a final blow on unstable feeble economy. Here we make an attempt to analyze how changed economic situation in Ukraine and especially standard of life of its citizens four years after disintegration.

Within the last five years economic situation and standard of life in Ukraine have substantially decreased. Destruction of economy was closely followed by ruining of consumer market. Inability of ukrainian rulers to work efficiently in the new conditions of independence, lack of qualified managers in industry, orientation on production of raw materials in the frames of the USSR, absence of national currency, political and economic pressure of neighboring Russia, strong mafia and some other reasons resulted in 66% decrease of industrial output at the end of 1995. Destruction of economy was followed by hyperinflation that ruined bank accounts for majority of people in the country. Only in 1991 government put into circulation by 32% more currency than it had been done within the last 30 years (Ukrainian Business News, No.43, 1995). Dynamics of economic parameters characterizing standard of life is shown in Table 1.

   
   Table 1
   Dynamics of economic parameters characterizing standard of
                           life in Ukraine

   ----------------------------------------------------------------
    Parameter           1989  1990  1991  1992  1993  1994   1995
                                                           1st half
   ----------------------------------------------------------------
   Consumer prices        1   1.07    4    88   9026  46034  83447
   index
   Real income index      1   1.11  0.89  0.56  0.26   0.20
   Annual growth of
   prices (times)             1.07  3.90   21   103    5.0    1.85
   Growth of mean salary
   in industry (with
   respect to previous
   year, times)           1   1.10  4.30   16    50    4.20   2.10
   ----------------------------------------------------------------

Real income of people has been continuously decreasing, some money that people had at their accounts in banks completely disappeared in a short period of time because of hyperinflation. As of summer of 1994 standard of life has decreased by 10 times and people stopped to bother themselves with purchasing more or less expensive items.

Within the last 5 years consumer prices increased by 83,000 times, price of consumer basket of essential foods increased by 100,000 times, apartment rent and communal services - by 170,000 times. Communal services payment system is extremely irrational. Actually only electricity consumption can be influenced by an apartment owner - turn off everything and decrease the bill. Prices for water and heat supply are fixed by the local administration.

Express-report released by the Ukrainian Ministry of Statistics on September 21, 1995 throws light on the mean income in the second quarter of 1995.

   Table 2
   Distribution of population with respect to mean income in the second 
   half of 1995 ($1 = 180,000 ukr. krb.)
   ---------------------------------------------------------------
    Monthly income       Number of people    Percentage with
    (thousand of         getting the income  respect to total
     karbovanets)             (mil.)         number of population
   ---------------------------------------------------------------
 less than 300                  0.2                 0.3
     301 - 600                  0.9                 1.7
     601 - 900                  1.6                 3.1
     901 - 1800                 8.4                16.2
    1801 - 2700                10.6                20.6
    2701 - 3600                 8.7                16.8
    3601 - 4500                 6.9                13.4
    4501 - 5400                 4.5                 8.7
    5401 - 6300                 3.1                 6.1
    6301 - 7200                 2.2                 4.3
    7201 - 8100                 1.4                 2.6
    8101 - 9000                 0.9                 1.7
    more than
           9000                 2.3                 4.5
   ---------------------------------------------------------------
                     Total:    51.7                100 %

Thus, 72.1% of the whole ukrainian population or 37.7 mil of people have a mean income which is less than 4.5 mil of karbovanets or $25.

About 60% of these people are not pensioners, and do not belong to jobless families - actually these are people who work and their families. Perhaps this is the most unpleasant fact in the social and economic policy of the state. In such a situation ukrainians may not have enough strength to build their independent state, revive economy and to increase their standard of life.

What is the current situation at the end of 1995?

In the middle of November, 1995, economic situation in Ukraine was much worse even than a year before. Decline of economic production comprised 14-16% in comparison to January, 1995. Standard of life in Ukraine continued to decrease, and as a result of this process about 50-60% of population found themselves on the edge of extreme poverty.

Within the first 10 months of 1995 inflation at the retail food market comprised 460% (UBN, No.43, 1995). Norms of food consumption determined by the Decree of Cabinet of Ministers No.244 issued on October 3, 1991, every citizen in town should spend at least 7.5 mil krb. ($41.7) on food per month, and pensioners - 6.2 mil krb. ($34.5). In the meantime mean income was 4.6 mil krb. per capita in September with a mean level of pension 2.5 mil. The norm of food proposed by the Cabinet of Ministers includes 11 items, and it does not provide enough calories for working people. More suitable for consideration is a basket of essential foods of 17 items proposed by the World Health Organization (WHO), which provides 3,032 kilo calories/day for a mean consumer. Besides food, people should buy clothes, shoes, pay for communal services, etc. Total expenses absolutely necessary for surviving at the minimum standard create minimum consumer budget.

If all these considerations are taken into account it will be clear that an average family in town should spend at least $275.0/month, although this sum is a little different for different areas of Ukraine (see Table 3).

   Table 3
   Minimum consumer budget in September, 1995 (thousand of krb.)
   --------------------------------------------------------------
     Town     Basket of essential Minimum consumer     Family of
                   foods cost         budget             three
              working  pensioner   working  pensioner   persons
   --------------------------------------------------------------
    Kyiv       9,332     6,091      26,130    17,055     65,325
    Vinnytsia  5,588     3,647      15,646    10,212     39,115
    Odesa      6,481     4,230      18,147    11,844     45,368
    Simferopol 7,172     4,681      20,082    13,107     50,205
    Uzhgorod   8,698     5,677      24,354    15,896     60,885
    Kharkiv    6,596     4,305      18,469    12,054     46,173
    Chernigiv  5,617     3,666      15,728    10,265     39,320
   --------------------------------------------------------------
    Mean over
    Ukraine    7,070     4,614      19,794    12,979     49,485

Now let's get down to some facts from real life. Lets consider, for example, professor's salary in October which was 16-18 million or 90-100 US dollars. If a professor lived in a two-room apartment he had to pay 3.5 million for apartment, and if he lived in a three- room apartment he paid 4.5 million. One more million per month was to be paid for the public transportation means what covered all kinds of buses and subway. Thus, at least 5 million were to be subtracted from the salary, and in the best case professor had 11-13 million of koupons (karbovanets) to spend on food and clothing, - nothing else could be afforded for this money.

If we divide 12 million on 30 days, we will find out that daily sum to be spent on food was 0.4 million or 400,000 koupons = $2.22. What can be bought for this money? About 0.8 kg of low quality sausage, or 6.4 kg of bread, or 5.5 kg of potatoes, or 7 liters of milk, or 2.7 kg of sugar, or about 1 l of vodka. Perhaps this is not very much if we take into account that professor may have children and wife who cannon work for some reason. Actually this is the very minimum that allows people to keep their body and soul together.

The situation is much worse with pensioners who's monthly payment is about 2.5-4.5 million koupons. In spite of the fact that public transportation means are free for pensioners and they pay 50% of the apartment rent this is miserable sum which makes people search waste buckets in a hope to find something to eat or empty bottles that could be sold, etc.

But even this miserable salary is not paid for 2-5 months, to say nothing of people who work at collective farms where salary is not paid for 8-10 months. People in the country live in the same manner as they lived 2-3 centuries before. All necessary food is produced at home, on a small piece of land that every family has near their cottage. An average family usually possesses 0.5-0.8 hectare of land where they grow potatoes, cabbage, onion, carrot, cucumbers and tomatoes (plus sometimes some corn and wheat). All these vegetables are used by the family itself as well as to feed 2-3 pigs, a cow, and 15-20 chicken. All capable to work also work in collective farm (kolkhoz) field where they grow sugar beet, wheat, barley corn, corn, etc. Ukraine is one of the largest producers of sugar in Europe, nevertheless price on sugar is comparable to price on sugar in USA but salaries in these countries are completely noncompatible. Kolkhoz pays (if it pays at all) 2-4 million per month and some money is made thanks to selling a part of potatoes and wheat harvest, pig meat, and milk. All the family in the country should work all the year round to buy a new TV set or a refrigerator. Some families have cars preserved from soviet times but as a rule they do not have enough money to buy gasoline which costs $1.50 per gallon.

The most prosperous people in the country are those who can steel wheat or sugar from kolkhoz and sell in somewhere in Russia. Usually these people are head of the collective farm, accountant-in-chief, and the person who is responsible for storage where the harvest is kept.

The situation in industry is not much better. An average salary at chemical plant in Kiev (capital of Ukraine) is about 6-8 million karbovanets per month, and qualified engineer may have a salary comparable to pension, i.e. 4-6 million. Perhaps the most "prosperous" are workers and engineers who work at the capital and road construction companies. Worker's salary here amounts to 15-20 million, and engineer's salary reaches 25-30 million = 140-150 US dollars.

However really rich people live in large cities. Usually they are members of some exporting mafia that transfers steel, sugar, wheat, etc. abroad. Or people who managed to use formerly stored money so that to organize large trade enterprises. Rich people can be easily distinguished with extremely expensive imported cars, clothing and loose unpleasant manners.

A very special group of ukrainian and russian society create people's deputies (members of the Parliament), government and administration of the President. In spite of the fact that minister's salary is not very high (20-25 million karbovanets) portfolio of a minister acts like extremely powerful magnet. According to some Supreme Soviet lobby interviews minister's portfolio costs about $100,000. So, market relations in government circles have replaced completely inefficient old command-and- administrative system. The first thing the ministers do is building of a new house in suburbs of Kiev an average price of which is 250-300 thousand dollars. Good houses for a good price - for distinguished citizens. People's deputies themselves are not poor people in spite of the salary which approximately equals to $300. There are unofficial but well-known prices on export licenses, profitable contracts, privatization permits, etc. Every third member of the Parliament is a head of some fund in Ukraine. Where do they get money for the funds? As says popular kievan newspaper "Vechirnij Kyiv" it is easy to notice that the fund's accounts usually increase just before the Parliament makes some important decision or immediately the decision was made. Of course, a head of a definite fund used all his power for the decision to be taken. Lots of deputies use their cell phone sets directly during the Parliament sitting. This is relatively expensive toy - $3,000 per year. It is clear that deputy's salary is far from been good for such entertainments. The same considerations are true with respect to expensive imported cars that the deputies possess.

Where is the money from? Very often the deputies say they won this money in casino. Only in capital of Ukraine there are 10 casinos today. Yes, they get money for various "services" and explanation is playing in casino. It is impossible to discover the truth because the casinos are controlled by some deputy too. Another deputy "controls" banks, and some other "does business" in agriculture. Now the question is: Is it possible to fight the mafia? - Perhaps not.

Perhaps Ukraine is not so poor as most of common people in Ukraine think. At the beginning of November National Bank of Ukraine announced recently about doubling and tripling of capital in some leading ukrainian banks. Its very good for banks but the problem is how it is used? Is it used positively in the interests on ukrainian society?

Some figures presented by the Central Bureau of Statistics say that situation with financing various projects is very far from been satisfactory. Only 28% of the planned funding received in 1995 state organizations that perform search of oil and natural gas in Ukraine. Ministry of transportation has got nothing of planned for its development but Supreme Soviet received 152% of planned amount. Capital funding for cultural developments comprise only 1/20th of the funding provided for bureaucracy in Supreme Soviet. Actually government invested into Supreme Soviet the same amount of money that it provided for Ministry of Communications, Ministry of Industry, Ministry of Social Security, Ministry on Sport, Ministry on Chornobyl, State Housing Communal property, National Academy of Sciences, and State Committee on Light Industry taken together.

At the same time Ukraine continues investments of money into foreign economy!!! As Statistical Bureau report says basic investments were directed to the Swiss economy - 36.3% of the total foreign investments; Russia - 25%; Hungary - 15%; USA - 11.6%; Austria - 6.5%. Of course it is very interesting who made these investments and whose interests are followed here. Unfortunately the Bureau did not provide this information. However, Ukraine does not have money for printing new textbooks for students, no money for subscribing international journals even for large libraries in the capital, and no money to pay salary for professors and pension for pensioners. Ukraine also does not have money for environment protection though this is one of the most urgent problems - 4.0 billion tons of industrial waste with annual growth of 730,000 tons is accumulated in storages, 70% of which are nonsanctioned.

Perhaps Ukraine is not very poor if its President possesses modern Mercedes and next year government plans to purchase 10 more armored Murderesses for the most prominent members. Perhaps the situation is not so bad if hard currency continues to pile in foreign banks and is invested into foreign economies, and ukrainian President has enough time to meet russian humor "president" Mikhail Zhvanetsky and to laugh at the situation for two hours.

The economic situation and respectively standard of life are a little better in Russia which natural resources and industrial potential create much better possibilities for export. Besides, russian politicians are much more experienced and insistent in solving their problems. Ukrainian debt to Russia for energy resources is continuously growing, however nobody in Ukraine knows exactly how much natural gas or oil is consumed every year. Easily bribed ukrainian bureaucrats sign practically any papers presented bu russians.

Salaries in industry in Russia are 3-4 times higher, and salary of a university professor is 2.5-3 times higher than in Ukraine. No wonder that lots of ukrainians go to Russia to find better paid job. Ukrainians are welcome to Russia because of the two main reasons: usually highly qualified workers go to Russia, and ukrainians consume less alcohol what makes them more reliable workers. With respect to alcohol consumption russians are the world champions again - they consumed 13.7 L/person in 1995 (compare to 3.4 L in 1913). However, this figure does not take into account consuming of samogon (home-made vodka) which will add 35-40% more.

At the same time reversed migration process is observed especially between eastern regions of Ukraine and neighboring russian regions. During the war in Chechnia (northern Caucasus) many families fled from Russia to Ukraine to avoid enlistment of young draftees and sending them to fight in Caucasus. Nobody wanted to die in the war in spite of numerous patriotic speeches produced by russian politicians. Also many people from russian north (especially retired) try to settle somewhere in Crimea or other southern region of Ukraine.

Russia today is extremely insistent in creating of a new union of the Newly Independent States (NIS), and 98% of polled russian politicians completely support the idea that at least Ukraine, Russia, Belarus and some other NIS states should create new superpower in the future. Ukraine today is resisting creation of the new union and tries to be independent. Nevertheless the fact is that external debt of Ukraine is growing rapidly (8.2 billion of US dollars in November) what may make ukrainian leaders to change their minds in the future. Russia will hardly pay ukrainian debts but it will be a relief for some leaders - they will get rid of responsibility after their pockets are packed with money.