Английский эссе
.docxEconomic Perspective Of Ukraine And Russia Economics Essay
As it is known in the modern geopolitical realities that have been developed in the Eastern Europe as a result of the collapse of the Soviet Union - Ukraine has gained at its importance and became the second military power state after Russia in the post-Soviet Eurasia space. The geopolitical position of Ukraine is determined by the proximity of the two states: Russia and Poland. The latter is a member of NATO and the European Union. This neighborhood effects the functioning of the country that could be virtually split into two different regions.
Most politicians and political analysts say about existence of the phenomenon called "two-faced Ukraine". The Dnieper River separates the country in the way the civilization cordon could do, creating insurmountable ideological chasm between two parts of the single country. One part of the Ukraine is closer to Russia - "pro-Russian" and the other - "anti-Russian" and "pro-Western" (Okara, 2007)
The eastern part of Ukraine is characterized by a significant share of the Russian population and Russian-speaking Ukrainians, mainly Orthodox believers. This is where the industrial potential of the country is concentrated. This leads to close personal and economic ties with Russia. The western part of the country, albeit with interruptions, was for a long time part of Poland and the Austro-Hungarian Empire, which had a strong influence on the socio-cultural characteristics of its population. The Uniat Church dominates there and anti-Russian sentiments are widely spread. These facts manifest themselves in nationalistic slogans of some political parties and their orientation to the West. (Mirabdullaev, 2010)
After the collapse of the Soviet Union politics in Ukraine has largely been the product of the symbiosis of anti-Russian sentiments of the Ukrainian elite and the continued orientation of the majority of population to cooperation with the Russian Federation. Ukraine has been always balancing between the CIS and NATO. With Russia Ukraine has associated economic realities. It is dependent on Russian raw materials and energy by 80%, while demonstrating the most negative attitude towards the expansion and acceleration of integration with Russia and other countries of the Commonwealth of Independent States.
Meanwhile, the official attitude of Ukraine to the CIS is that it considers Commonwealth as a mechanism for a civilized solution of problems that have arisen since the collapse of the USSR. Since Ukraine has not signed the CIS Charter, it does not consider itself as a member of Commonwealth, taking part in a number of bodies as an observer. Highlighted desire to consolidate the independence in all the ways has resulted in a refusal to participate in a multilateral military cooperation of the CIS, in the joint protection of external borders, position on the section of the Black Sea Fleet. The latter circumstance is well known and has contributed to a sharp weakening of Russia's position in the Black Sea basin, where, in addition, the strategic position of Turkey has also enhanced.
In general, in the East European region all CIS countries depend on Russian raw materials exports and energy. Russia practically ensures Ukraine with energy (90%). Industrial production in Ukraine and its end products is closely tied to cooperation with other CIS countries, primarily Russia. This dependence is 70%. However, Ukraine has a negative attitude to the expansion and acceleration of integration with Russia and within the CIS (Mirabdullaev, 2010).
Ukrainian and Russian society, like the vast majority of societies with state socialism past began their movement to a market economy and democracy at the turn of 1980-1990s with similar resources. In the collapse of the Soviet system they lacked:
Strong state
Developed civil society, able to compensate for the "failures" of the state and other public institutions
Initial capitals, developed markets and relevant skills (Kucenko, 2006).
Since 1992 the privatization of small and large enterprises through an open tender procedure has started in Ukraine, and from 1995 to 1999 the process of mass voucher privatization took place. However, as a result of large-scale voucher privatization millions of citizens, contrary to expectations, did not become real owners. For example, in Ukraine 19 million shareholders became owners in name only, not even filling out the ownership of the shares acquired. Non-cash privatization led to the acquisition of ownership by insiders, which caused a slow demand for institutional reforms. In turn, the lack of developed market institutions leads to the fact that transactions on the secondary market encourage the concentration of ownership in the hands of a small number of politically-engaged owners. On this basis, very quickly were formed a "redistributive coalitions", which led to the crystallization of the economic dominance of several major business and political groups of "oligarchic" nature (Kucenko, 2006).
This feature quiet well displays a system of internal and external factors, the emergence and development of political crisis in Ukraine. However, it suggests that substantial basis of this system is the fact that Ukraine is oligarchic state. This is a pivotal component of the internal economic factors. (Koryakina_1)
Ukraine from 1994 until 2004 was ruled by President Leonid Kuchma and group of powerful business men so-called "oligarchs" who supported him during the elections in 1999. His policies did not differ by significant reforms, but were characterized by corruption and infringement of human rights (Woehrel, S., 2009).
Control over the proceeds of all revenues from oil and gas resources on account business structures, controlled by a "clan" of Leonid Kuchma, gave oligarchs economic weight and unlimited opportunity to influence political decisions. This economic factor has contributed to the deepening crisis in politics due to the power crisis 1999 - 2000 periods.
However, it should be once more noted that Ukraine, like most of the CIS countries, is economically dependent on Russia. This is evidenced by a number of significant facts. Back in 1999, Ukraine was considered as hopeless defaulter for gas. On that period it was owed to Gazprom $ 1,065 billion. Moreover, Russia was supplying gas to Ukraine for only $ 34 per thousand cubic meters. Then it became obvious that if E. Primakov (Russian Prime-Minister at that time) would not visit Kiev, the Ukrainian would suffer worst economic collapse, contributing to worsening Crisis in politics (Koryakina, 2006).
These events were linked to the attempt of the Ukrainian president to blackmail Moscow that was associated with Ukraine's desire to enter NATO. In 1998Â in response to a "public flirtation" of the Ukrainian authorities with "the West" took place the breach of the Russian - Ukrainian energy relations.
In any way, Ukraine's geopolitical position between Russia and the European Union is often used by Ukrainian politicians to pressure the Russian leadership to the acquisition of certain economic and political advantages (Mirabdullaev, 2010).
Current situation
Since the Soviet collapse, relations between Ukraine and Russia were characterized by
both elements of cooperation and conflict. Difficult decisions also include questions regarding the Crimea and the Black Sea Fleet (BSF) that locates its Russian part in Sevastopol. On May 31, 1997 the Russian-Ukrainian Treaty on Friendship, Cooperation and partnership was signed, which has resolved existed claims of both countries against each other, including territorial, which meant the end of the dispute over the ownership of the Crimea. Since independence, Ukraine is pursuing a multi-policy which was based on the task of ensuring self-sufficiency, including the military political issues (Kuzio, 2003). Relations with NATO are regulated within the Council of Ukraine - NATO. Ukraine has actively participated in the program: "Partnership for Peace" (Mirabdullaev, 2010)
In 2005 a new leadership of Ukraine led by president Viktor Yushchenko who came to the power after the Orange Revolution made a much greater emphasis on the pursuit to integrate the country into NATO and the European Union. Kiev confirmed commitment assumed by the military and political obligations in relation to Russia, in particular, an agreement on BSF in Crimea Peninsula before 2017. Some experts believe that the presence of the Russian base in Crimea closes the path of Ukraine's accession to NATO. Indeed, one of the conditions of admission of new NATO members is the absence of military bases of other states on their territory. In this context, Russia raises some concerns about Ukraine's foreign policy. It envisages the tendency of the gradual transformation of Ukraine into one of the centers of power against Russia. (Kropacheva, 2006:16)
To date, we can obviously assume that political system of Ukraine during the presidency of Viktor Yushchenko (2005-2010) was in a state of pronounced protracted crisis. It is characterized by duration and ambiguous episodic manifestation of trends in the exacerbating of the crisis in the politics of the State.
The crisis in Ukrainian politics, determined by economic problems was caused by a new exacerbation of problems related to the Russian - Ukrainian "gas" relationships. Until 2005, the Russian side carried out prepayment for about 200 - 250 $ million for gas transit via Ukraine to Europe. At the same time Ukrainian consumers were paying for consumption of Russian gas at a price two times lower than the market price. The requirement of "orange" authorities to Russia paying for gas transit to the market price, in fact, contributed to the start of the new direction of development of the political crisis in Ukraine.
Statement by RAO "Gazprom", in response to claims of Ukraine that the price for gas supplies to Kiev will raise to 55 - 69% (i.e. to 110 - 160 $ per 1000 cubic meters) could have extremely negative impact on domestic economic position of the Ukrainian state. Instead of seeking consensus, Yulia Tymoshenko (former Prime minister of the country), implementing plans for the U.S. rupture of economic ties with Russia, initiated a project pipeline "Iran - Europe", which is planned to supply gas to Ukraine from Iran instead of Russia (Koryakina, 2006).. It must be said, that the project would require considerable cost for Ukrainian budget which would impact the welfare of the population taking into account the economically weak state
The political crisis in Ukraine in 2005, associated with the resignation of Tymoshenko was due not only to internal problems in the country, but also to the "gas" split of the Ukrainian political elites to find supporters of a compromise relations with Russia and his opponents. Continued demand from Russia to calculate market prices for gas transit and the reluctance for the same price to pay for energy supplies led to the fact that January 1, 2006 gas supplies to Ukraine were halted. Because of the self-take of gas from the pipe by the Ukrainian side gas supply to Europe was stopped, which contributed for signing a new contract between Ukraine and Russia and within two days the gas supply was restored (Woehrel, S., 2009).
Consequently, the substantial foundation of foreign economic factors emergence and development of the political crisis in Ukraine is characterized by imbalance in the socio-political and economic relations caused by the installation of the U.S., orienting the "orange" political elites to break economic ties with Russia with respect to which Ukraine is economically dependent on state, mostly in raw materials industries (Koryakina,, 2006).
The last gas crisis that occurred in 2009 was caused by inability of the two sides to reach agreement on a price for the supply of gas and Ukraine's debt to Gazprom. This time the gas crisis has affected not only Ukraine but also Europe. Finding other facts of gas self-taken on January 6 Russia cut off gas supplies to Europe for two weeks until the new agreement was reached. The EU was concerned about what is happening in Ukraine, as many countries within the Union have been seriously affected due to the incident.
All these events together have contributed to the construction of a new gas pipelines: Nord Stream (under the Baltic See) and South Stream (trough Balkans) bypassing Ukraine. Construction of the Nord Stream has already begun, while the South Stream is not available at an early date. Construction of the latter would significantly affect the transport infrastructure of Ukraine that would significantly reduce its income. And, furthermore, it will enable Russia to exert pressure on Ukraine in solving of other problems (Woehrel, S., 2009).
These facts suggest that attempts to break the economic relations with Russia have extremely negative impact on domestic economic and, hence, the internal political situation in Ukraine.
Areas of economic cooperation
The high level of industrial development of Soviet Union was achieved through the so-called unified economic complex. This is the most obvious reason why economic relations between Ukraine and Russia were affected after the collapse of USSR - their interdependence of each other. This is explained by the fact that Ukraine produced only 20-30% of the total amount of the production cycle, whereas 70-80% of the remaining products were manufactured or supplied for the assembly from the other Union republics. Unfortunately, relations with other former Soviet republics were the same and all integrative processes which were created within the Soviet Union during the rupture of economic ties have been lost at the both micro and macro levels (Pylypenko, 2007).
If during soviet times it was possible to find demand on Ukrainian goods within the soviet republics due to the presence of economic ties within the USSR that has actually been a variant of economic and monetary union, after its collapse and annihilation of all old business links and supply chains volumes of industrial production in Ukraine have decreased considerably, e.g.: production of mineral fertilizers decreased by 50%, chemical fibers and man-made yarns - by 6 times, plants protection agents by 50 times ( NSD, 2009).
Thus, the reorientation of the mining industry to world markets to the detriment of the national manufacturing sector has not only reduced the domestic production in both countries, but also the volume of bilateral trade: The bilateral trade volume since 1996 to 1999 decreased from $ 14.4 billion to $ 8 billion or 55, 5%, while Russia's share in the Ukrainian commodity exports declined from 38, 7% to 20, 7%.
Inability to solve economic problems while maintaining a high interdependence of economies has become one of the causes of economic conflict between Ukraine and Russia. Direct consequence of the rupture of cooperation ties has been the decline of high-tech production; fall in profitability, reduction of revenue and, as a result - degradation of people's welfare, unemployment and the risk of social discontent.
At the same time, in terms of use of various schemes of tax evasion in the sphere of foreign economic activity by businessmen and the lack of effective control over exports and imports, increased foreign exchange earnings from commodity exports did not contribute to a qualitative improvement in the economy, because the gains from exports mainly received the business organizations rather than the economy in general. (NSD, 2009)
Reorientation of trade relations between the two countries began with the year 2000, when, after a long period of decline the first recorded growth of mutual trade took place. In 2004 the total trade turnover between Ukraine and Russia has reached $ 20.350 billion, which is almost 2 times more than in 1999. Ukrainian exports to Russia during this period increased by 1.8 times, Russian imports to Ukraine - by 2, 1 times.
In 2001 - 2002 important bilateral documents have been signed, in particular, the program of cross-border and interregional cooperation, an intergovernmental memorandum on the principles of non-use of special measures regarding the import of goods originated from the customs territories of the parties, agreement on strategic cooperation in the gas sector and other (NSD, 2009).
Despite the cooling of relations in the political sphere, followed by the presidential elections in Ukraine in 2004, economic cooperation between Ukraine and Russia continued to develop. So, according to State Statistics Committee of Ukraine, Ukraine's total foreign trade turnover in goods and services from Russia increased, compared with the previous year, in 2006Â - by 12, 1%, in 2007Â - by 28, 4% in 2008 - by 18, 7%.
Source: State Statistics Committee of Ukraine
Let us now have more closer look at some issues of the bilateral trade between two countries. As it becomes clear from the aforementioned table, volumes of the bilateral trade between two countries have faced an increase between 1998 and 2006. Both Ukrainian exports to Russia as well as Ukrainian imports from Russia have increased in absolute terms from $ 5.5 bn (export) and $ 7.3 bn (import) in 1998 to respectively $ 11.8 bn (export) and $ 14.4 bn (import) in 2006. However, if we then take relative terms in account we see that both Ukrainian export and import to and from Russia have decreased from 31 percent point of total exports in 1998 to 26 percent points in 2006 and for imports from 46 percent points in 1998 to 30 percent points in 2006. From our point of view this controversial picture can be described by means of several assumptions. First is that during the discussed period the structure of inter-state trade has probably been changed, which has been reflected in the decrease of the Russian share in Ukrainian trade itself. Secondly, it can be that in absolute terms Ukrainian foreign trade has been increasing by higher rates than those between Ukraine and Russia. Finally, the reason can be that the period between 1998 and 2006 can itself reflect controversial data and could represent different trends and different sub-periods. Indeed, if we split given period into two sub-periods of 1998-2004 and 2004-2006 we see the decreasing shares of the Ukrainian exports to Russia in the first sub-period, whereas in 2004-2006 this share has started to increase from 21.6 percent points in 2004 to 26 percent in 2006.
Additional data for 2007 and 2008 states that Ukrainian export to Russia increased to 28 percent of total exports in 2007 and remained at the same level in 2008 [1] . In the same time the downward sloping trend of the Ukrainian imports from Russia as a share of total imports continued to prevail and constituted 27 and 22 [2] percent points for 2007 and 2008 respectively. So, on the one hand, we see two sub-periods with different trends for exports' share changes: decreasing between 1998 and 2004 and increasing between 2004 and 2008, on the other hand - volumes of Ukrainian imports (as share in total imports) from Russia have been constantly decreasing between 1998 and 2008 and were halved as a share of total imports by 2008 comparing with 1998. By means of its exports' growth in 2004-2008 Ukraine has also been able to decrease its negative balance in trade with Russia from - $ 5.35 bn in 2006 to - $ 3.67 bn in 2008 [3] . If we try to have a more detailed and closer look at the structure of the Ukrainian foreign trade with Russia in 2004-2008 we will see the following picture.
Ukrainian economy continued to stay dependant on Russian imports as it was represented by energy commodities and raw materials (46,8 percent and 42,8 percent of total Russian imports to Ukraine in 2007 and 2008 respectively). On the other hand in Ukrainian exports to Russia prevailed products with middle and high processing degree as well as services (in 2008 exports to Russia were presented by machinery products (32 percent), metallurgy products (20%) and services (20%). This means that the structure of Ukrainian exports seems to be more diversified comparing to that of Russian imports that can be viewed as a positive moment and possible comparative advantage (NSD, 2009).
However, it should be stated that the bilateral trade between the countries has been highly influenced by the turmoil of global economic and financial crises in the end of 2008 and throughout 2009.
Source: (NSD, 2009, 2009: 18)
It is clear from the chart that Ukrainian exports to Russia as well as Russian imports decreased dramatically in 2008 - IQ 2009 that highlights high dependence of both countries on the international economics as well as similar trends within the economies discussed. We would also like to note that as a result of such decrease the share of energy commodities in Russian imports to Ukraine increased to 66 percent that once again highlights critical dependency of Ukrainian economy on energy imports from Russia. In its turn in Ukrainian exports to Russia share of services has considerably increased to 34% that probably indicates possibilities for further growth if Ukraine will be able enhance the quality of its transport, construction and financial services exported to Russia.
Concluding it is possible to say that trade relations between Ukraine and Russia have experienced different periods of oppositely directed trends as mutual trade has stagnated in 1990-1999, then faced the increase in 2000-2008 and decreased again in 2008-2009. This, once again, states about an ambiguity and complexity of economic relations between two countries.