It is close to 10 p.m. here in Kiev but we were just treated to a fireworks display that we could see out all of our windows. It was happening in a park about a block away and the booms and crumps from the exploding shells, which is what they are, set off car alarms at each explosion. It is the Day of Kiev and this is a part of the celebrations.
I was reminded watching it that on another day near the end of the Orange Revolution there had been other fireworks. They boomed and echoed around the buildings here just as they did today. But on that day, I was thinking that I was glad and even grateful that they were fireworks and not artillery shells and mortar rounds. That they could have been both, was a constant threat. And one needs only look at what happened in Uzbekistan to see what could have happened-- and what came very close to actually happening here.
But they were fireworks on that day and they were fireworks this evening. The booms echoed along these old Soviet era apartment buildings—concrete blocks—much like echoing sounds down a canyon. I counted four echoes tonight. And we live in the suburbs. The last place we lived, I counted twelve of them.
Have a good Memorial Day weekend all.
Saturday, May 28, 2005
Thursday, May 26, 2005
Rolling blackout in Moscow
What a mess in Moscow yesterday. Power Goes Off in Moscow, 4 Regions and Outage Brings Big Businesses to a Standstill. Looks like power was restored somewhat but that it continued in some areas until this morning (Thursday.)
Hundreds of thousands were stranded in the subway and had to be extricated by authorities, in the dark it looks like, and about 1500 people had to be rescued from elevators stuck between floors. Traffic, which is a real problem in Moscow on good days, became a nightmare with all the traffic lights not working. And then there's all the economic damage:
Hundreds of thousands were stranded in the subway and had to be extricated by authorities, in the dark it looks like, and about 1500 people had to be rescued from elevators stuck between floors. Traffic, which is a real problem in Moscow on good days, became a nightmare with all the traffic lights not working. And then there's all the economic damage:
Large companies closed their offices, trading shut down, tons of meat went bad and taxi drivers started demanding 5,000 rubles ($180) for a ride from Paveletsky Station to Domodedovo Airport.
The cost of Wednesday's power outage in Moscow and four nearby regions was impossible to calculate by evening, but it looked set to run into the billions of rubles over lost income and disrupted services.
Wednesday, May 25, 2005
The row
Over the weekend, there was a report on the TV of a row between Yuschenko and Tymoshenko. When it got to me, secondhand, the report was that Yuschenko had told Tymoshenko to resign and join the opposition. I later found out that he had told her that she could resign and join the opposition if she wanted to.
By the first part of this week, it became apparent that they were downplaying any disagreements they might have had behind closed doors. They both appeared together and emphasized that they had a good working relationship and saw eye-to-eye on how to deal with the problems facing the country.
And a businessman who had been in on the meeting where Yuschenko made the statement reported that he considered it to be a kind of an ironic statement not meant to be taken seriously. So it was much ado about nothing--at least that is how it is playing out now in public.
The one thing that can be said for sure is that Yuschenko did criticize the government’s handling of the gas crisis. He said it was not “professional,” a phrase he used in the debates to criticize the Yanukovych government for its “administrative measures.” The measures undertaken by the government were not market oriented according to him, a criticism that has been leveled by a number of people including me. This may conflict with some statements made earlier by him where he took credit for the measures taken by Tymoshenko but I think that was more of an attempt to create some sort of harmony in the government. Yuschenko does that sort of thing from time to time. It often heartens his enemies and demoralizes his friends.
In any event, he has given the government one week to solve the gas problem.
I can say that we passed several stations on the way back into Kiev from out of town on Sunday and found them all to have gas. The price was up to 3.20 h. just as it was before the administrative measures kicked in but they all had it.
On whether the Russians are behind it, Tymoshenko is reported to have said that the SBU, the secret service, will be naming the names of those behind this conspiracy. This may happen and the Russians may in fact be behind some sort of conspiracy to deny Ukrainians gasoline. The problem though is that the measures taken by the government also can cause the same problems simply by operation of the market.
Look, there are some Russians who are not happy with the way things turned out here. That is a fact. But it is hard to know how widespread that unhappiness is. There are others who are not unhappy about it though. These Russians want to see a liberal Russia, that is, a free and democratic Russia. They saw the Orange Revolution with a sense of hope for their own country even while acknowledging that it would be a much harder thing to happen there. And a number of these Russians came here to be a part of the revolution.
The people in the Kremlin weren’t happy about it, of course, and with the power that has been amassed there, they make a majority in any man’s town. (Is that Twain in Huckleberry Finn?) They have become paranoid about the potential in Russian for such a thing according to some reports. Do they still want to influence events here? Yes, of course they do. But I am not so sure that businesses are listening with as much attention as they once did. And the Russian oil companies would have had to listen to them to do their bidding.
In the past, Putin has been able to move the Russian stock market (or is it stock markets?) by giving a speech on business. He speaks, the markets move. The last time he spoke, in his state of the nation speech of a month or so ago, the markets didn’t budge. And that speech was full of things that would have been very good news to the ears of businessmen. But the market didn’t budge.
And there is another thing. We were in the village this past weekend. On Saturday, I took my father-in-law to the market about 5 miles away to buy some provisions. We got there about an hour after it opened and bought the dry goods we needed first. Then we went to the building where they sold the meat.
On the inside, there was a large, long counter on which the sellers placed their meat. They had cutting boards behind the counter where it could be cut but the meat, what there was of it, was sitting on the front counter.
I was struck by how little there was of it. And there were only 3 sellers there selling anything. They took up about a fourth of the counter space that could be used.
My father-in-law asked for pork. There wasn’t any. Pork is the preferred meat for Ukrainians and there wasn’t any there. I guess it is possible they all sold out before we got there, but I don’t think it likely. There is always plenty of pork for sale there. But on that day there wasn’t.
The reason is that pig farmers are not selling either. They have been subject to administrative measures and many of them have refused to sell at all. That, I think, is the reason we found none. We were in the village where a lot of pigs are raised but no pork was available for us to buy. We settled in the end for the little bit of beef that was there. (That didn’t break my heart.)
These administrative measures create shortages. The point is that people are as free not to sell as they are to sell and they will not sell if their price isn’t met.
By the first part of this week, it became apparent that they were downplaying any disagreements they might have had behind closed doors. They both appeared together and emphasized that they had a good working relationship and saw eye-to-eye on how to deal with the problems facing the country.
And a businessman who had been in on the meeting where Yuschenko made the statement reported that he considered it to be a kind of an ironic statement not meant to be taken seriously. So it was much ado about nothing--at least that is how it is playing out now in public.
The one thing that can be said for sure is that Yuschenko did criticize the government’s handling of the gas crisis. He said it was not “professional,” a phrase he used in the debates to criticize the Yanukovych government for its “administrative measures.” The measures undertaken by the government were not market oriented according to him, a criticism that has been leveled by a number of people including me. This may conflict with some statements made earlier by him where he took credit for the measures taken by Tymoshenko but I think that was more of an attempt to create some sort of harmony in the government. Yuschenko does that sort of thing from time to time. It often heartens his enemies and demoralizes his friends.
In any event, he has given the government one week to solve the gas problem.
I can say that we passed several stations on the way back into Kiev from out of town on Sunday and found them all to have gas. The price was up to 3.20 h. just as it was before the administrative measures kicked in but they all had it.
On whether the Russians are behind it, Tymoshenko is reported to have said that the SBU, the secret service, will be naming the names of those behind this conspiracy. This may happen and the Russians may in fact be behind some sort of conspiracy to deny Ukrainians gasoline. The problem though is that the measures taken by the government also can cause the same problems simply by operation of the market.
Look, there are some Russians who are not happy with the way things turned out here. That is a fact. But it is hard to know how widespread that unhappiness is. There are others who are not unhappy about it though. These Russians want to see a liberal Russia, that is, a free and democratic Russia. They saw the Orange Revolution with a sense of hope for their own country even while acknowledging that it would be a much harder thing to happen there. And a number of these Russians came here to be a part of the revolution.
The people in the Kremlin weren’t happy about it, of course, and with the power that has been amassed there, they make a majority in any man’s town. (Is that Twain in Huckleberry Finn?) They have become paranoid about the potential in Russian for such a thing according to some reports. Do they still want to influence events here? Yes, of course they do. But I am not so sure that businesses are listening with as much attention as they once did. And the Russian oil companies would have had to listen to them to do their bidding.
In the past, Putin has been able to move the Russian stock market (or is it stock markets?) by giving a speech on business. He speaks, the markets move. The last time he spoke, in his state of the nation speech of a month or so ago, the markets didn’t budge. And that speech was full of things that would have been very good news to the ears of businessmen. But the market didn’t budge.
And there is another thing. We were in the village this past weekend. On Saturday, I took my father-in-law to the market about 5 miles away to buy some provisions. We got there about an hour after it opened and bought the dry goods we needed first. Then we went to the building where they sold the meat.
On the inside, there was a large, long counter on which the sellers placed their meat. They had cutting boards behind the counter where it could be cut but the meat, what there was of it, was sitting on the front counter.
I was struck by how little there was of it. And there were only 3 sellers there selling anything. They took up about a fourth of the counter space that could be used.
My father-in-law asked for pork. There wasn’t any. Pork is the preferred meat for Ukrainians and there wasn’t any there. I guess it is possible they all sold out before we got there, but I don’t think it likely. There is always plenty of pork for sale there. But on that day there wasn’t.
The reason is that pig farmers are not selling either. They have been subject to administrative measures and many of them have refused to sell at all. That, I think, is the reason we found none. We were in the village where a lot of pigs are raised but no pork was available for us to buy. We settled in the end for the little bit of beef that was there. (That didn’t break my heart.)
These administrative measures create shortages. The point is that people are as free not to sell as they are to sell and they will not sell if their price isn’t met.
Thursday, May 19, 2005
Got gas
We went out this morning to forage for gas, at least that's what we were prepared for. We strapped in the little boy and took off for the station--one block away. I was prepared for having to wait, if the station had any gas, or to go on a reconnaissance in force to find some some other place.
When we pulled near the station, we saw there was no line. That was good news. We pulled in and had to wait for another guy in front of us to finish but that was all the wait we had--about 5 minutes in all. The girl operating the pump filled us up and even spilled some on the ground in a ceremony meant to appease the natural resource gods of the sub stratum. That could only help. (The Enlightenment side of my brain says that she spilled it out when she tried to top us off--still a good omen in my book.)
A couple of stops at the market for food and we got home in about 45 minutes. Not bad.
It is interesting here though that there are not as many cars on the streets as on days before the gas problem. It is much more like the number of cars out on a Sunday. Maybe people have adjusted to a new default level with their cars and driving. They don't do it as much. Maybe that's why we didn't have any line at the pump.
We did find that the gas station was open 24 hours. We might try late at night if we see lines forming again.
When we pulled near the station, we saw there was no line. That was good news. We pulled in and had to wait for another guy in front of us to finish but that was all the wait we had--about 5 minutes in all. The girl operating the pump filled us up and even spilled some on the ground in a ceremony meant to appease the natural resource gods of the sub stratum. That could only help. (The Enlightenment side of my brain says that she spilled it out when she tried to top us off--still a good omen in my book.)
A couple of stops at the market for food and we got home in about 45 minutes. Not bad.
It is interesting here though that there are not as many cars on the streets as on days before the gas problem. It is much more like the number of cars out on a Sunday. Maybe people have adjusted to a new default level with their cars and driving. They don't do it as much. Maybe that's why we didn't have any line at the pump.
We did find that the gas station was open 24 hours. We might try late at night if we see lines forming again.
Re-reprivatization again
I was pretty stunned when I read this headline: “UKRAINE'S TIMOSHENKO DENIES GOVT ONLY PLANS TO REVIEW 29 PRIVATISATIONS: She Contradicts statements by Vice Prime Minister Anatoly Kinakh and President Viktor Yushchenko.” But the statement below looks actually like a sane solution that is more in line with rule of law. And it might provide some clarity and finality to this thing that could reassure investors—depending of course on how the thing is implemented. But this is much more sensible rhetoric:
Prime Minister Yulia Timoshenko denied that the government has a list of 29 companies whose privatisations are to be reviewed, indirectly denying the statement of a senior government official which was confirmed by President Viktor Yushchenko last week.
"It's not true, it (the list) does not exist. I stress that there is no list ... as that is not part of the government's duties, it is the job of the law courts, of the prosecutor's office, to see what has been done correctly and what has not been", Timoshenko said, cited by Interfax-Ukraine.
Timoshenko said the government has prepared a draft law which will enable the difference in prices to be calculated between the actual price and the sale price of the companies sold off cheaply under the former government. She added that she will give details of this procedure this week. The method of calculation will be fair for the companies involved as well as for their current owners, Timoshenko said. She has told the companies that they should repay the difference. (The Action Ukraine Report #486, no link.)
(I can't seem to undo the indent. Oh well.)
Those of us working here to attract investment to the country are frustrated--a euphemism for "pulling out one's hair--when we see comments coming from the government that makes our jobs all that much harder. A lot of us are here because we want to help. If we wanted to make the really big bucks, we'd be in Poland or Czechoslovakia or some other emerging-market-new-EU-member. But there wouldn't be anywhere near the satisfaction of knowing that you are helping to make things better for the people like there is working here.
Wednesday, May 18, 2005
The economy
HEre's a very interesting articel from The Day--Six-Month Inflation �Reserve� Exhausted "????"--on the current and propective economic conditions here.
Some highlights:
Some highlights:
So far the government’s attempts to curb inflation have produced only modest results: in the past four months it has reached 5.1%, an appalling figure if you take into account the official forecast of an annual 9.8%. Should the current rate persist, prices may shoot up by 15.3% by the end of the year, something we haven’t seen for a long time. If we look at the April index alone (0.7%), it does not seem to be a big one, but even if this not-so-high rate continues until year’s end, we will reach 10.3%. This is also too much. Most households in this country, with a per capita budget of 100 dollars at most, will have to tighten their belts, although the government talks about wage and pension hikes almost on a daily basis. In practice this means that one hand is giving the ordinary Ukrainian something that the other hand is immediately taking away.
Optimists close to the Cabinet and the National Bank have their own scenario of further developments. They foresee zero inflation or even deflation in the summer and early autumn, following a seasonal price drop in prices for eggs and vegetables.
In their view, this forecast will hold good for late fall if there is a good harvest.
Unfortunately, the price situation will depend not only and not so much on the government’s words (although this is also an important factor) as on its deeds. Here things are not quite so rosy.
It should be recalled that we were recently reassured that Ukraine would not turn into a country of vegetarians. But let’s look at the prices in the grocery store nearest the editorial office, which is mostly patronized by ordinary people who live a long way from supermarkets. Frankfurters cost UAH 20.20/kg and cooked sausage from UAH 26.90/kg to 29.90/kg, depending on the variety. These prices cater to the so-called children’s and pensioners’ sector. And here is the middle-class sector: cold beef is UAH 36.50/kg, cold boiled pork from UAH 42 to UAH 56/kg. What is more, the rather surprised salesclerk told The Day’s correspondent that the price of sausages had even dropped (by about one hryvnia) over the past few days.
Is this the result of the government’s anti-inflationary measures? Yes, to some extent. A farmer friend of mine said he was fed up with the local authorities’ demands to sell meat at a low, by no means market-oriented, price. “If they continue doing this, I will, of course, sell meat — to neighboring farmers, not the administration,” he says, “and let them either sell it at a market price or eat it up!” But not everyone can stand up to the bosses. Experts note, however, that administrative pressure can only succeed in the short term, i.e., today, tomorrow, for a month. Then come shortages and skyrocketing prices.
As for price-reducing market instruments, they have admittedly failed. Cabinet failed to negotiate cutting the meat import duty with parliament. Meat auctions were also deflated. Bidders for the meat tender held by the State Committee for Material Reserves on May 11 withdrew their bids because the starting price of meat was too low and, hence, unacceptable. Things did not improve even when the committee raised the starting price to a thousand hryvnias per ton...
Tuesday, May 17, 2005
Kinakh dissents
From this article, Tymoshenko Blaming Oil Shortage on Russia (Moscow Times), it looks like Kinakh is not on the same page as the PM:
"First Deputy Prime Minister Anatoliy Kinakh criticized his Cabinet colleagues Saturday for trying to intervene and set prices, suggesting that had led to the shortage in supply.
'When you have a complicated problem to do with the growth of prices, trying to resolve it by looking for an enemy or using administrative force to put pressure on the market ... doesn't work,' said Kinakh, who is considered business' best friend in the government."
A Kremlin isolated
In this article, A Victory for State Paranoia (Moscow Times) Pavel Felgenhauer, a defense analyst in Moscow ends by saying
Outsiders usually believe Kremlin paranoia is senseless or senile, but it is not. Putin's ministers know very well how to defend their interests; they do not need anyone from the West to teach them. The problem is that the interests of the ministers who promote state paranoia and isolationism do not coincide with the interests of the nation.This seems about right.
Comments
I allow disagreement with me in the comments and have kept comments here posted by people who have some real strong disagreements with me. That is part of a healthy debate. I will not allow though attacks and name calling in the comments.
Just so you know.
Just so you know.
More on gasoline
Apparently, the BBC is reporting that the Russians are involved in this whole shortage of gasoline business to teach Yuschenko a lesson. And they might be. The problem though is that it would be a lot better case if the government hadn't stepped in with price controls. Price controls can create these kinds of shortages.
The Russians should be blamed for a number of things but the case ought to be better than this one to blame them for this. To see them as the cause of all the trouble doesn't seem to me to be the best kind of policy. At the very least, it won't win over the East.
The Russians should be blamed for a number of things but the case ought to be better than this one to blame them for this. To see them as the cause of all the trouble doesn't seem to me to be the best kind of policy. At the very least, it won't win over the East.
Monday, May 16, 2005
On gasoline and blackmail
We were out this morning trying to get some errands run and ended up passing around 16 gasoline stations. Of those 16 only 3 had gas that could be used in later model cars. And the price for it was 3.20 hryvnas for 95 octane which had a price cap last week of 2.99. These three stations all had lines of cars.
And we just heard that Lukoil will only give out 10 liters of gas at their stations. In the same report, Tymoshenko also announced that a refinery will be built in Odessa that is supposed decrease the dependence on Russian supplies. It will take a year and a half to finish. That should help me fill up my car by Christmas, 2006.
Any guesses on who will own that refinery? I don’t know for sure but with all that has been going on, I would bet it will be government owned.
Tymoshneko said that the gasoline situation is a result of Russian blackmail. This will get tedious if every time something happens the Russians get the blame. But it is hard to see any Russian hand in it or any other hand but the invisible one that works in the market. The problem is that prices were capped by government fiat. And when prices are capped, it is not difficult to see the result: Companies will sell their product elsewhere to markets where the price is not capped.
This is more apace with the other comments coming from the Prime Minister. The problem with the rise in beef prices is the middleman price gouging. Sounds a bit retrograde to me. The only persons who had any legitimacy in the bad/good ole’ days—which are they?--were the ones who put their labor into it and the ones who consumed it. Anyone else was an enemy of the state. But middlemen have their function too. They get the products to market, something that ought to be considered a real benefit in a country with a population as widely dispersed as the Ukraine has. (Bread, for instance, is not available in the villages in the quantity and quality it is available in the Ukraine. No middlemen.)
The Prime Minister said it is blackmail by the Russian oil companies. The problem with that assessment is that blackmail is at the base of capitalism. If you do not meet the price, you will not get the product. The reason why it is considered legitimate is that the market is free and the consumer is able to go to other producers and sellers. The argument is that with that freedom comes competition and that competition ends up in lower prices and better quality. What actually happens is more complex but these are the justifications for it. And it seems to work fairly well doing what it does.
The problem is that some in the administration are either trying to solidify their base by a populist appeal or some are working on their own account with this populist appeal. The problem is that your populist appeal is undermined when you have voters waiting in line to fill up their cars at higher prices, especially after you have announced that you have brought the price down, that is, have it under control. I guess that is why the Russians must be blamed.
And it may work. But foreign investors see it for what it is and will not be happy. They—whoever they are-- might end up with a larger majority in Parliament but find foreign investment drying up all around them. That will affect growth. The populace might be consoled with politicians saying they have brought them justice for what happened to them in the past. But being able to eat and to provide for a family in the present is a kind of justice too. That is something they would be foolish to ignore.
And we just heard that Lukoil will only give out 10 liters of gas at their stations. In the same report, Tymoshenko also announced that a refinery will be built in Odessa that is supposed decrease the dependence on Russian supplies. It will take a year and a half to finish. That should help me fill up my car by Christmas, 2006.
Any guesses on who will own that refinery? I don’t know for sure but with all that has been going on, I would bet it will be government owned.
Tymoshneko said that the gasoline situation is a result of Russian blackmail. This will get tedious if every time something happens the Russians get the blame. But it is hard to see any Russian hand in it or any other hand but the invisible one that works in the market. The problem is that prices were capped by government fiat. And when prices are capped, it is not difficult to see the result: Companies will sell their product elsewhere to markets where the price is not capped.
This is more apace with the other comments coming from the Prime Minister. The problem with the rise in beef prices is the middleman price gouging. Sounds a bit retrograde to me. The only persons who had any legitimacy in the bad/good ole’ days—which are they?--were the ones who put their labor into it and the ones who consumed it. Anyone else was an enemy of the state. But middlemen have their function too. They get the products to market, something that ought to be considered a real benefit in a country with a population as widely dispersed as the Ukraine has. (Bread, for instance, is not available in the villages in the quantity and quality it is available in the Ukraine. No middlemen.)
The Prime Minister said it is blackmail by the Russian oil companies. The problem with that assessment is that blackmail is at the base of capitalism. If you do not meet the price, you will not get the product. The reason why it is considered legitimate is that the market is free and the consumer is able to go to other producers and sellers. The argument is that with that freedom comes competition and that competition ends up in lower prices and better quality. What actually happens is more complex but these are the justifications for it. And it seems to work fairly well doing what it does.
The problem is that some in the administration are either trying to solidify their base by a populist appeal or some are working on their own account with this populist appeal. The problem is that your populist appeal is undermined when you have voters waiting in line to fill up their cars at higher prices, especially after you have announced that you have brought the price down, that is, have it under control. I guess that is why the Russians must be blamed.
And it may work. But foreign investors see it for what it is and will not be happy. They—whoever they are-- might end up with a larger majority in Parliament but find foreign investment drying up all around them. That will affect growth. The populace might be consoled with politicians saying they have brought them justice for what happened to them in the past. But being able to eat and to provide for a family in the present is a kind of justice too. That is something they would be foolish to ignore.
Saturday, May 14, 2005
More on spot shortages
We were out again today driving and found that all of the stations we passed had no 95 octane. And half of the stations had no gas at all. Some of the stations had only 80 octane and it sold for a few cents less than 95. That stuff they run in the older Soviet era cars. I think you got to strain it to use it. (Must come right out of the crude oil barrel and someone spits in it for body. Or something. You can smell the cars that use it.)
The natural inclination is for people to say, "There were no shortages under Yanukovich." Yanukovich's regime had price controls too but Russia and Russian producers were only too happy to keep it going to please the Kremlin who backed Yanukovych. So the piper would eventually have had to be paid under his regime. But that may not be how the citizenry think about it. To them, there wasn't under Yanuklovych and now there is under Yuschenko.
The opposition is so weak that they probably won't take advantage of this golden opportunity to score points. But the administration is giving them a lot of ammunition to use if they could.
The natural inclination is for people to say, "There were no shortages under Yanukovich." Yanukovich's regime had price controls too but Russia and Russian producers were only too happy to keep it going to please the Kremlin who backed Yanukovych. So the piper would eventually have had to be paid under his regime. But that may not be how the citizenry think about it. To them, there wasn't under Yanuklovych and now there is under Yuschenko.
The opposition is so weak that they probably won't take advantage of this golden opportunity to score points. But the administration is giving them a lot of ammunition to use if they could.
The list
It has been reported that a list of twenty-nine companies has been compiled that the government will be looking at for potential reprivatization. That list was prepared on May 12th and will be released to the public soon according to Yuschenko. And he promised that there will be no other enquiries on any company not on that list.
That would be some good news for investors. It would not be the best news for investors, though. The problem with this whole incident is that it still shows the government has the power to renationalize businesses. (The fact that Yuschenko had to leave his assurance that no others would be targeted shows the problem.)What may be lacking is simply the political will to do it. There have been statements by others in the government that the figure should be higher and that certain strategic assets should be retained as government companies. This is from Yulia Tymoshenko and some others. That suggests at least that she and the others who have talked this way may not be real free market reformers after all. But it gives people pause when deciding whether or not Yuschenko is serious or whether he has the power to make good on his promises.
There are problems though. How do we know, for example, that the lower level bureaucrats will follow that list? Yuschenko says that these will be all and I take him at his word. The problem comes lower down. A business is not doing what a particular bureaucrat wants. Even in the face of what Yuschenko has said, what would be the most effective way for that bureaucrat to get that business to fall in line (or to get that business to pay the “fee”)? Do what he has always done or what he has always seen done: intimidate. “Did you see what we did to Crimean Widgets? Do you think that we cannot do the same thing to your business if we have a mind to?” In a country where business and everyone else has had to kowtow to the government--for some of them, their whole lives-- that kind of threat will be effective. The bureaucrat is the one with the power in the specific case, not President Yuschenko.
And foreign investors will see it for what it is: the government retains the power and some willingness on the part of certain ministers to look into many more companies than will be on that list. That they do not do so now doesn’t mean that there may not be a sea change and they would do it later. They still retain the power to do it. A slight change in the direction of the political winds might just give them the will to go ahead with it. This means that a continual cloud will remain hanging over the heads of any business that was obtained during the bad old days. And that is potentially a lot of businesses. This means that anyone looking to buy or invest will be very wary of doing either.
How do you remove that cloud? I don’t think it is ever removed completely without some sort of track record on the issue, especially not for a country like the Ukraine with its history. But there are some things that will serve to increase confidence.
First of all, clear guidelines need to be established to determine what businesses will be targeted and what won’t be. The business must meet those guidelines to be on the list. If it does not it should not be on the list and should not be targeted. It must be left alone. The important thing here is that the standards determine what business is on the list; the business doesn’t determine that. This is basic rule of law. Standards are set out and the businesses that meet those standards will be on the list and investigated. If the standards are not met by a particular business, that business will not be on the list.
I’m afraid though that that list may have been put together politically. This means that the business itself or the person or persons who own the business themselves determined whether the business is on the list or not. I hope I’m wrong about it but this is the way things have always been done here. To expect that it will change to a standards based system overnight might be expecting too much.
The other thing that is necessary is to have a prosecutor set up to investigate any claims made that the list has been exceeded or that any threat has been made to a company not on the list by any government official. If there is no legal basis for this kind of investigation, a law should be passed that provides the legal basis for it. That anyone dinking around with businesses not on this list will be prosecuted will give teeth to President Yuschenko’s promise that the list will not be exceeded.
The Ukraine needs investment if it is going to shed its poverty and claim a place in the world. And there is a trade-off in doing that; investors must be confident that their investment will be secure. There are a lot of companies that were acquired in the wrong way. There is no denying that. Was it unjust? Absolutely. Shouldn’t that injustice be remedied? It should ideally, but not if it stands in the way of a greater good. If that prosecution scares away the investment capital the Ukraine needs to modernize and to improve the lives of its citizens and to lift many of them out of poverty, then it will not be a good thing.
That would be some good news for investors. It would not be the best news for investors, though. The problem with this whole incident is that it still shows the government has the power to renationalize businesses. (The fact that Yuschenko had to leave his assurance that no others would be targeted shows the problem.)What may be lacking is simply the political will to do it. There have been statements by others in the government that the figure should be higher and that certain strategic assets should be retained as government companies. This is from Yulia Tymoshenko and some others. That suggests at least that she and the others who have talked this way may not be real free market reformers after all. But it gives people pause when deciding whether or not Yuschenko is serious or whether he has the power to make good on his promises.
There are problems though. How do we know, for example, that the lower level bureaucrats will follow that list? Yuschenko says that these will be all and I take him at his word. The problem comes lower down. A business is not doing what a particular bureaucrat wants. Even in the face of what Yuschenko has said, what would be the most effective way for that bureaucrat to get that business to fall in line (or to get that business to pay the “fee”)? Do what he has always done or what he has always seen done: intimidate. “Did you see what we did to Crimean Widgets? Do you think that we cannot do the same thing to your business if we have a mind to?” In a country where business and everyone else has had to kowtow to the government--for some of them, their whole lives-- that kind of threat will be effective. The bureaucrat is the one with the power in the specific case, not President Yuschenko.
And foreign investors will see it for what it is: the government retains the power and some willingness on the part of certain ministers to look into many more companies than will be on that list. That they do not do so now doesn’t mean that there may not be a sea change and they would do it later. They still retain the power to do it. A slight change in the direction of the political winds might just give them the will to go ahead with it. This means that a continual cloud will remain hanging over the heads of any business that was obtained during the bad old days. And that is potentially a lot of businesses. This means that anyone looking to buy or invest will be very wary of doing either.
How do you remove that cloud? I don’t think it is ever removed completely without some sort of track record on the issue, especially not for a country like the Ukraine with its history. But there are some things that will serve to increase confidence.
First of all, clear guidelines need to be established to determine what businesses will be targeted and what won’t be. The business must meet those guidelines to be on the list. If it does not it should not be on the list and should not be targeted. It must be left alone. The important thing here is that the standards determine what business is on the list; the business doesn’t determine that. This is basic rule of law. Standards are set out and the businesses that meet those standards will be on the list and investigated. If the standards are not met by a particular business, that business will not be on the list.
I’m afraid though that that list may have been put together politically. This means that the business itself or the person or persons who own the business themselves determined whether the business is on the list or not. I hope I’m wrong about it but this is the way things have always been done here. To expect that it will change to a standards based system overnight might be expecting too much.
The other thing that is necessary is to have a prosecutor set up to investigate any claims made that the list has been exceeded or that any threat has been made to a company not on the list by any government official. If there is no legal basis for this kind of investigation, a law should be passed that provides the legal basis for it. That anyone dinking around with businesses not on this list will be prosecuted will give teeth to President Yuschenko’s promise that the list will not be exceeded.
The Ukraine needs investment if it is going to shed its poverty and claim a place in the world. And there is a trade-off in doing that; investors must be confident that their investment will be secure. There are a lot of companies that were acquired in the wrong way. There is no denying that. Was it unjust? Absolutely. Shouldn’t that injustice be remedied? It should ideally, but not if it stands in the way of a greater good. If that prosecution scares away the investment capital the Ukraine needs to modernize and to improve the lives of its citizens and to lift many of them out of poverty, then it will not be a good thing.
Friday, May 13, 2005
Spot shortages
The radio reported today spot shortages of gasoline in Kiev. We were out this evening and saw a number of stations with no 95 octane which is the preferred gasoline here. There was lower octane fuel and higher octane fuel but no 95 octane.
At one point we were close to a TNK station, one of the Russian companies that negotiated with the government to reduce prices. There was no information on the price board about 95 octane. That was empty. But while we were waiting there, the price showed up. It was 3.20 hryvna. That is 21 kopek higher than the price agreed upon in negotiations with the government. I hadn’t heard that the price controls had lifted but apparently someone in that station or someone in TNK headquarters had authorized the price hike. That price is equivalent to the price before the controls.
So we get shortages and the price goes up anyway. Adds to the sense that the government doesn’t seem competent. That is a harsh thing to say, I know, but that is the feel. Yuschenko campaigned on a lot of things and liberalizing the economy was one of these. Price controls didn’t seem to be in the cards at the time. I know he has better sense than this but someone in his government doesn’t seem to.
At one point we were close to a TNK station, one of the Russian companies that negotiated with the government to reduce prices. There was no information on the price board about 95 octane. That was empty. But while we were waiting there, the price showed up. It was 3.20 hryvna. That is 21 kopek higher than the price agreed upon in negotiations with the government. I hadn’t heard that the price controls had lifted but apparently someone in that station or someone in TNK headquarters had authorized the price hike. That price is equivalent to the price before the controls.
So we get shortages and the price goes up anyway. Adds to the sense that the government doesn’t seem competent. That is a harsh thing to say, I know, but that is the feel. Yuschenko campaigned on a lot of things and liberalizing the economy was one of these. Price controls didn’t seem to be in the cards at the time. I know he has better sense than this but someone in his government doesn’t seem to.
Wednesday, May 11, 2005
The holidays
These past few days have been holidays around here. They mark the Soviet end of World War II--the Great Patriotic War-- which was on May 9th. (For us the end is May 7th.) Tuesday was a day off too for everyone, at least we couldn’t contact our bank and the kids didn’t go to school so we think it was a day off for everyone else.
Monday, the day of the actual celebrations, we heard music from the World War II era blaring out in the streets. It came from a truck with large speakers moving up and down the neighborhood. It echoed around these Soviet concrete apartment blocks. It didn’t last all day though.
In the evening, we watched a fireworks display from our balcony. The kids would count the seconds between the flash and the boom to figure out how far away it was. Actually, there were two displays we could see. One, about a mile away, which was bigger and brighter, of course, and came with booms that rattled windows and set off car alarms. And there was another that was much further away that ended up sounding as if there were thunder in the distance.
We didn’t spend much time out on Monday so I couldn’t get a feel for it. Downtown was supposed to have a big parade with the living veterans of the war. There was some dispute as to whether they should add the veterans of the nationalist army in the west. (These are the guys who shot in both directions.) They are not seen by some as having been on the good side in that war. I don’t know how that came out.
I read an article, can’t remember where, about whether there was such a thing as a Soviet man. That is what Stalin wanted to create, a citizen of the Soviet Union who was a product of soviet culture, a homo sovieticus as one Russian called it. The article cited some who said there was such a thing and some who said there wasn’t even as they talked a bit wistfully of those times back then. Maybe that shows there is something to it all.
I have seen some of that. One of the things you hear around here is that the Soviet Union was a nation of many nationalities, all of which were equal. When I tell them that Russians predominated in the party and in management, you can see the wheels going as they remember who their bosses were. They recognize the point. But is this an example of a sort of Soviet man or simply a matter of believing the only information they had at the time, the propaganda? Maybe it is some of both.
The article found some of the same sort of thing. They know the problems and understand the atrocities but they still linger with some—“wistfulness” is the only word I can think of-- on portions of that era. In the end though, I think it is a tough thing for anyone to completely write off whole portions of a life and say that it was meaningless at best. To dismiss Soviet ideology out of hand and to focus on Soviet atrocities alone is to require people to do this sort of thing. But it is a bit unfair.
A few years back, when I first came to the Ukraine, I went to the museum, Rodina Mat, the Motherland. It is a building topped by a large statue of a woman which serves as a war museum. It is about 300 feet high, made of titanium, a natural resource in Ukraine. The woman has a sword raised high over head in one hand and a shield in the other. It is meant to symbolize the heroic strength of the Ukrainian people. It is not liked all that well here by the people I know.
Leading up to the museum are panels that depict artistically the Great War in relief, at least some of the patriotic themes of that war. One mural in particular portrayed soldiers in the midst of battle fighting with all sorts of guns and other weaponry, if my memory serves me. It was meant, I think, to portray the action and some of the chaos of battle where soldiers fought with whatever weapon they had. It was an impressive mural, as I think about it now.
Two dimensional art, especially reliefs, can only portray so much. I think the artist was suggesting that there were many men fighting in the scene other than the ones that show but what shows is only a line of men—men fighting with rifles fighting in front of men with pistols. I thought that told the truth at the time more than they would admit. I made the comment to the person who was with me: “Look. The guys in the back have guns pointed at the backs of the ones in front. This is how it really was. They had to train guns on the soldiers in front to get them to fight at all.” I thought that a clever observation that anyone would agree with who really knew the issues.
And I saw everything else in the same terms. Everything I saw, from the guillotines used by the Nazis to kill POWs to the concentration camp artifacts there, was linked in my mind to the Soviets and to their wickedness. It was not the Nazis who were really at fault to me, bad as they were, it was the Soviets. Stalin after all decimated the upper ranks of the army leaving it without much expertise to face a well trained German army. And they were ill-equipped to boot.
We saw all of these artifacts in the lower floors of the museum. When we got up to the third floor, I think it was, we entered into a large room with a mosaic of pictures on one wall-- thousands of pictures of Ukrainians killed by the Germans. In the middle of the room was a table, a long table with empty glasses on it all around. That table was meant to be a kind of statement that the people who died were still in the memory of the living and that a place was still set for them at the table. All in all, over 8 million Ukrainians died in the Great Patriotic War.
I thought it to be an interesting room. I saw it in the same detached way though I had viewed everything else from. But when we had been there for a few minutes, I looked over at the person I was with and saw that she was in tears. That struck me. I thought it was interesting and could still make a case that the real villains were the Soviets who sent people to their deaths in wave after wave. No real concern for human life. (Lenin: “It is not who we kill that is the issue, but who we let live.” Stalin: “One death is a tragedy; a million deaths a statistic.”) And the case could be made that they were fighting for a regime that was on the same order as the Nazis. There is truth in all of this.
But to the person I was with, a person who knew all of this and had no nostalgia for the Soviet era, this was personal. She didn’t see it in ideological terms at all. For her it wasn’t about the Soviet system, the party, Stalin or Lenin. It was for her the sacrifice of her countrymen, countrymen who defended their homeland and gave up their lives doing it. There is a nobility in that even so, something I see now but didn’t see then. That they might have ended up with something at least as bad in no way diminishes what they did personally. They fought for family, for friends and for country and gave up their lives by the millions doing it. There is something noble in that and something that ought to be respected and appreciated. And they should be given their due. I see that better now.
Monday, the day of the actual celebrations, we heard music from the World War II era blaring out in the streets. It came from a truck with large speakers moving up and down the neighborhood. It echoed around these Soviet concrete apartment blocks. It didn’t last all day though.
In the evening, we watched a fireworks display from our balcony. The kids would count the seconds between the flash and the boom to figure out how far away it was. Actually, there were two displays we could see. One, about a mile away, which was bigger and brighter, of course, and came with booms that rattled windows and set off car alarms. And there was another that was much further away that ended up sounding as if there were thunder in the distance.
We didn’t spend much time out on Monday so I couldn’t get a feel for it. Downtown was supposed to have a big parade with the living veterans of the war. There was some dispute as to whether they should add the veterans of the nationalist army in the west. (These are the guys who shot in both directions.) They are not seen by some as having been on the good side in that war. I don’t know how that came out.
I read an article, can’t remember where, about whether there was such a thing as a Soviet man. That is what Stalin wanted to create, a citizen of the Soviet Union who was a product of soviet culture, a homo sovieticus as one Russian called it. The article cited some who said there was such a thing and some who said there wasn’t even as they talked a bit wistfully of those times back then. Maybe that shows there is something to it all.
I have seen some of that. One of the things you hear around here is that the Soviet Union was a nation of many nationalities, all of which were equal. When I tell them that Russians predominated in the party and in management, you can see the wheels going as they remember who their bosses were. They recognize the point. But is this an example of a sort of Soviet man or simply a matter of believing the only information they had at the time, the propaganda? Maybe it is some of both.
The article found some of the same sort of thing. They know the problems and understand the atrocities but they still linger with some—“wistfulness” is the only word I can think of-- on portions of that era. In the end though, I think it is a tough thing for anyone to completely write off whole portions of a life and say that it was meaningless at best. To dismiss Soviet ideology out of hand and to focus on Soviet atrocities alone is to require people to do this sort of thing. But it is a bit unfair.
A few years back, when I first came to the Ukraine, I went to the museum, Rodina Mat, the Motherland. It is a building topped by a large statue of a woman which serves as a war museum. It is about 300 feet high, made of titanium, a natural resource in Ukraine. The woman has a sword raised high over head in one hand and a shield in the other. It is meant to symbolize the heroic strength of the Ukrainian people. It is not liked all that well here by the people I know.
Leading up to the museum are panels that depict artistically the Great War in relief, at least some of the patriotic themes of that war. One mural in particular portrayed soldiers in the midst of battle fighting with all sorts of guns and other weaponry, if my memory serves me. It was meant, I think, to portray the action and some of the chaos of battle where soldiers fought with whatever weapon they had. It was an impressive mural, as I think about it now.
Two dimensional art, especially reliefs, can only portray so much. I think the artist was suggesting that there were many men fighting in the scene other than the ones that show but what shows is only a line of men—men fighting with rifles fighting in front of men with pistols. I thought that told the truth at the time more than they would admit. I made the comment to the person who was with me: “Look. The guys in the back have guns pointed at the backs of the ones in front. This is how it really was. They had to train guns on the soldiers in front to get them to fight at all.” I thought that a clever observation that anyone would agree with who really knew the issues.
And I saw everything else in the same terms. Everything I saw, from the guillotines used by the Nazis to kill POWs to the concentration camp artifacts there, was linked in my mind to the Soviets and to their wickedness. It was not the Nazis who were really at fault to me, bad as they were, it was the Soviets. Stalin after all decimated the upper ranks of the army leaving it without much expertise to face a well trained German army. And they were ill-equipped to boot.
We saw all of these artifacts in the lower floors of the museum. When we got up to the third floor, I think it was, we entered into a large room with a mosaic of pictures on one wall-- thousands of pictures of Ukrainians killed by the Germans. In the middle of the room was a table, a long table with empty glasses on it all around. That table was meant to be a kind of statement that the people who died were still in the memory of the living and that a place was still set for them at the table. All in all, over 8 million Ukrainians died in the Great Patriotic War.
I thought it to be an interesting room. I saw it in the same detached way though I had viewed everything else from. But when we had been there for a few minutes, I looked over at the person I was with and saw that she was in tears. That struck me. I thought it was interesting and could still make a case that the real villains were the Soviets who sent people to their deaths in wave after wave. No real concern for human life. (Lenin: “It is not who we kill that is the issue, but who we let live.” Stalin: “One death is a tragedy; a million deaths a statistic.”) And the case could be made that they were fighting for a regime that was on the same order as the Nazis. There is truth in all of this.
But to the person I was with, a person who knew all of this and had no nostalgia for the Soviet era, this was personal. She didn’t see it in ideological terms at all. For her it wasn’t about the Soviet system, the party, Stalin or Lenin. It was for her the sacrifice of her countrymen, countrymen who defended their homeland and gave up their lives doing it. There is a nobility in that even so, something I see now but didn’t see then. That they might have ended up with something at least as bad in no way diminishes what they did personally. They fought for family, for friends and for country and gave up their lives by the millions doing it. There is something noble in that and something that ought to be respected and appreciated. And they should be given their due. I see that better now.
Friday, May 06, 2005
100 days
There have been a number of articles on the government of Yuschenko since he took office this past week commemorating, of a sort, the first one hundred days of the Yuschenko government. The Kyiv Post, for one, had an editorial lamenting that more had not been done since Yuschenko took power and that some of what had been done—raising pensions, for one-- was the type of thing Yanukovych did prior to the election. He was roundly criticized by the Yuschenko camp for it.
Here’s my take on it:
First of all, the actions of the government do not seem to be coordinated in any way. They seem to be ad hoc decisions made on certain things as they catch the attention of the respective minister for whatever reason. There seems to be no overall plan of attack on these issues.
The biggest example of this is the revaluation of the hryvna and the negotiations with the Russian oil companies to voluntarily roll back their price increases. These two don’t look like they would go together but the fact is that the Russian oil companies really didn’t decrease prices in real terms. What they got was a stronger hryvna in payment, a hryvna made stronger by the central bank’s revaluation. That means no real price decrease.
There has been an argument made by some that this was what was intended by Tymoshenko in the first place. The hryvna revaluation allowed her to get her price decrease without the Russian oil companies having to give in on anything. They got their value anyway and Tymoshenko got gasoline prices down to make consumers here happier. (Consumers are voters after all.) So it was a wash under this view and suggests some collusion between Tymoshenko and the Russian companies and Tymoshenko and the head of the central bank.
There is a lot that can be said for this view. The argument for the revaluation was that it would bring down inflation. But the inflation argument doesn’t wash. The head of one of the European banks here said that the hryvna would have to rise about 15% against the dollar to bring inflation this year to down under double digits. The rise here was only about 3%. So the revaluation won’t even begin to bring inflation under control. Since inflation will not decrease appreciably, then there must have been some other non-economic reason for it--so the argument goes.
And some of the public statements made by Tymoshenko that the hryvna is overvalued aren’t really an argument either. The hryvna doesn’t float; it is pegged to the dollar which means its value is set by the government for policy reasons. That means the hryvna might be undervalued or it might be overvalued but the government maintains it that way for policy reasons. If they were going to float the hryvna, then saying it was overvalued would be something of an argument. But they have no intention of floating it right now.
So there is some reason to think that there might have been collusion. I happen to think there wasn’t any. I think it was simply a coincidence and a lack of coordination among the higher levels of government. I think no one knows what anyone else is doing at the moment and none of it is a part of any overarching plan for the government. Many of the decisions appear to be made on the fly with no attention paid to their collateral consequences. And not much attention is paid to addressing what the opposition might make of it. Good intentions and clean hands do not make up for a case not being made in the public arena.
Where’s the Ukrainian Karl Rove?
A second problem is that the actions of the government are not transparent enough. This is true in a number of areas. The biggest political instance is the arrest of Kushnaryov, an associate of Akhmetov from the Donetsk area. His arrest touched off a number of protests claiming it is payback for having been a part of Yanukovych’s camp. There were a number of protests that took place over this. They have since petered out but the claim that it is retribution still hangs in the air.
The government of course denies it and has alleged certain crimes that he has been involved in and I bet they have the evidence. But the problem is that the case should have been made in public for his arrest. That might have been a difficult thing to do because of the possibility of flight. (The country of choice for people fleeing arrest is Russia, interestingly.) But it has to be done.
One of the things an American prosecutor has to do is to detail the criminal allegations against a defendant in either an information or an indictment by a grand jury depending on the jurisdiction. The result of this is that a case starts to be made for the arrest of the person charged before the fact and it is all matter of public record.
This is not done here as far as I can tell. There may be no procedure for it but there ought to be. The east is still not Yuschenko territory and they have enemies there and any number of other people there who do not trust Yuschenko and his government. If people on the opposition side keep getting arrested, that will not make them true believers. It ust confirms them in everything they ever suspected about Yuschenko and his government. To combat this, the government must come up with some kind of bill of particulars detailing the illegal conduct of the person arrested and the laws broken.
The government is also threatening to revoke the licenses of at least one television station—possibly two-- that was pro-Yanukovych. The government argues that the station was given certain frequencies by government officials that were not paid for. The station on the other hand is arguing political retribution, the tit for tat that is political business as usual around here. And this station has the airwaves to make their case with. The government on the other hand has not even begun to make their case as to why the license should be revoked. Again, a bill of particulars detailing what laws were violated and how needs to be drawn up.
The third problem is that the re-nationalization issue has not been resolved yet. The number of companies to be renationalized is anywhere from a dozen to three thousand. There is nothing out there a company or potential investor can look at to tell them if a particular company will be renationalized. It is all up in the air. There are calls by Yuschenko for a list of companies but there hasn’t been one to date. And Tymoshenko says she will press the Parliament for a law on the re-nationalization but it is hard to see what that will do other than provide some kind of color of law to operate under. There isn’t any for them to operate under now? If they are looking for legal authority to do it that suggests that maybe no law was broken in the first place. If that is true, then this legislation would be for nationalizing the companies—a naked grab. That kind of things will not make investors comfortable.
The fact is that this is a horrible state of affairs for potential investors. What will happen to the company they purchase or the stake they acquire in any company here in the Ukraine? Will it be subject to nationalization? No investor in his right mind is going to want to put money in any concern here under these circumstances even if the potential returns were quite high. If the company were renationalized, their stake could be locked up in disputes for a long time. And with the courts the way they are here right now, it is not a certainty that they can rely on what would be the law to reclaim their stake. The courts are getting better but they are not there yet.
The problem with the whole re-nationalization talk is that it shows the government still has the power to do it even if they may not be willing to use it. To say that they will only renationalize twelve and then stop means they have the power to go the whole way. The only thing lacking would be the reason to do it or the will to do it. Not a real stable state of affairs for investment.
This has to stop. The government needs to set out clear guidelines as to what companies it will focus on and if a company does not fall under those guidelines it should be left alone.
The ideal from some people’s points of view is to leave them all alone. I think that would exact too much of a political price from Yuschenko for him to do it. He made justice on these privatization deals a central part of his campaign. So I think he has to go after some of these companies to protect his flank. But they have to be the most serious cases. The rest must be left alone or it will thoroughly undermine the goodwill that has been created by the Orange Revolution. Many companies are now looking at the Ukraine that wouldn’t have thought anything about it before. They need to be assured that any investment they make will be secure.
There is an argument that re-nationalization is being left as an issue for the Parliamentary elections next year. If that is the case, it is irresponsible. Investment is needed here right now and those with investment money are not going to wait around for this problem to be solved next year. They will take there money to other countries not threatening to nationalize any companies. And there are a lot of those countries around. The problem is that the government may end up with a sizeable majority in Parliament but bring the house down around them to do it. And they will not be able to escape the charge that this is simply more of what has always happened here. It will have been more of what has always happened around here. And that would make the Russians right about the revolution.
The fourth problem is all the price controls and government intervention in the marketplace. This serves to prop up inefficient businesses. If they want to bring prices down they should liberalize the economy and decrease tariffs. The problem with this from their point of view is that that will spell the end for any number of Ukrainian businesses. But WTO entry will do the same thing. It is better to get them used to it now. If can be more gradual than a kind of shock therapy, but there must be more movement in that direction. But there seems to be not much at all.
All of this said though, the people still have confidence in Yuschenko and Tymoshenko. Their popularity has only increased recently. And maybe there is some sort of strategy in all of this. One can only hope.
Here’s my take on it:
First of all, the actions of the government do not seem to be coordinated in any way. They seem to be ad hoc decisions made on certain things as they catch the attention of the respective minister for whatever reason. There seems to be no overall plan of attack on these issues.
The biggest example of this is the revaluation of the hryvna and the negotiations with the Russian oil companies to voluntarily roll back their price increases. These two don’t look like they would go together but the fact is that the Russian oil companies really didn’t decrease prices in real terms. What they got was a stronger hryvna in payment, a hryvna made stronger by the central bank’s revaluation. That means no real price decrease.
There has been an argument made by some that this was what was intended by Tymoshenko in the first place. The hryvna revaluation allowed her to get her price decrease without the Russian oil companies having to give in on anything. They got their value anyway and Tymoshenko got gasoline prices down to make consumers here happier. (Consumers are voters after all.) So it was a wash under this view and suggests some collusion between Tymoshenko and the Russian companies and Tymoshenko and the head of the central bank.
There is a lot that can be said for this view. The argument for the revaluation was that it would bring down inflation. But the inflation argument doesn’t wash. The head of one of the European banks here said that the hryvna would have to rise about 15% against the dollar to bring inflation this year to down under double digits. The rise here was only about 3%. So the revaluation won’t even begin to bring inflation under control. Since inflation will not decrease appreciably, then there must have been some other non-economic reason for it--so the argument goes.
And some of the public statements made by Tymoshenko that the hryvna is overvalued aren’t really an argument either. The hryvna doesn’t float; it is pegged to the dollar which means its value is set by the government for policy reasons. That means the hryvna might be undervalued or it might be overvalued but the government maintains it that way for policy reasons. If they were going to float the hryvna, then saying it was overvalued would be something of an argument. But they have no intention of floating it right now.
So there is some reason to think that there might have been collusion. I happen to think there wasn’t any. I think it was simply a coincidence and a lack of coordination among the higher levels of government. I think no one knows what anyone else is doing at the moment and none of it is a part of any overarching plan for the government. Many of the decisions appear to be made on the fly with no attention paid to their collateral consequences. And not much attention is paid to addressing what the opposition might make of it. Good intentions and clean hands do not make up for a case not being made in the public arena.
Where’s the Ukrainian Karl Rove?
A second problem is that the actions of the government are not transparent enough. This is true in a number of areas. The biggest political instance is the arrest of Kushnaryov, an associate of Akhmetov from the Donetsk area. His arrest touched off a number of protests claiming it is payback for having been a part of Yanukovych’s camp. There were a number of protests that took place over this. They have since petered out but the claim that it is retribution still hangs in the air.
The government of course denies it and has alleged certain crimes that he has been involved in and I bet they have the evidence. But the problem is that the case should have been made in public for his arrest. That might have been a difficult thing to do because of the possibility of flight. (The country of choice for people fleeing arrest is Russia, interestingly.) But it has to be done.
One of the things an American prosecutor has to do is to detail the criminal allegations against a defendant in either an information or an indictment by a grand jury depending on the jurisdiction. The result of this is that a case starts to be made for the arrest of the person charged before the fact and it is all matter of public record.
This is not done here as far as I can tell. There may be no procedure for it but there ought to be. The east is still not Yuschenko territory and they have enemies there and any number of other people there who do not trust Yuschenko and his government. If people on the opposition side keep getting arrested, that will not make them true believers. It ust confirms them in everything they ever suspected about Yuschenko and his government. To combat this, the government must come up with some kind of bill of particulars detailing the illegal conduct of the person arrested and the laws broken.
The government is also threatening to revoke the licenses of at least one television station—possibly two-- that was pro-Yanukovych. The government argues that the station was given certain frequencies by government officials that were not paid for. The station on the other hand is arguing political retribution, the tit for tat that is political business as usual around here. And this station has the airwaves to make their case with. The government on the other hand has not even begun to make their case as to why the license should be revoked. Again, a bill of particulars detailing what laws were violated and how needs to be drawn up.
The third problem is that the re-nationalization issue has not been resolved yet. The number of companies to be renationalized is anywhere from a dozen to three thousand. There is nothing out there a company or potential investor can look at to tell them if a particular company will be renationalized. It is all up in the air. There are calls by Yuschenko for a list of companies but there hasn’t been one to date. And Tymoshenko says she will press the Parliament for a law on the re-nationalization but it is hard to see what that will do other than provide some kind of color of law to operate under. There isn’t any for them to operate under now? If they are looking for legal authority to do it that suggests that maybe no law was broken in the first place. If that is true, then this legislation would be for nationalizing the companies—a naked grab. That kind of things will not make investors comfortable.
The fact is that this is a horrible state of affairs for potential investors. What will happen to the company they purchase or the stake they acquire in any company here in the Ukraine? Will it be subject to nationalization? No investor in his right mind is going to want to put money in any concern here under these circumstances even if the potential returns were quite high. If the company were renationalized, their stake could be locked up in disputes for a long time. And with the courts the way they are here right now, it is not a certainty that they can rely on what would be the law to reclaim their stake. The courts are getting better but they are not there yet.
The problem with the whole re-nationalization talk is that it shows the government still has the power to do it even if they may not be willing to use it. To say that they will only renationalize twelve and then stop means they have the power to go the whole way. The only thing lacking would be the reason to do it or the will to do it. Not a real stable state of affairs for investment.
This has to stop. The government needs to set out clear guidelines as to what companies it will focus on and if a company does not fall under those guidelines it should be left alone.
The ideal from some people’s points of view is to leave them all alone. I think that would exact too much of a political price from Yuschenko for him to do it. He made justice on these privatization deals a central part of his campaign. So I think he has to go after some of these companies to protect his flank. But they have to be the most serious cases. The rest must be left alone or it will thoroughly undermine the goodwill that has been created by the Orange Revolution. Many companies are now looking at the Ukraine that wouldn’t have thought anything about it before. They need to be assured that any investment they make will be secure.
There is an argument that re-nationalization is being left as an issue for the Parliamentary elections next year. If that is the case, it is irresponsible. Investment is needed here right now and those with investment money are not going to wait around for this problem to be solved next year. They will take there money to other countries not threatening to nationalize any companies. And there are a lot of those countries around. The problem is that the government may end up with a sizeable majority in Parliament but bring the house down around them to do it. And they will not be able to escape the charge that this is simply more of what has always happened here. It will have been more of what has always happened around here. And that would make the Russians right about the revolution.
The fourth problem is all the price controls and government intervention in the marketplace. This serves to prop up inefficient businesses. If they want to bring prices down they should liberalize the economy and decrease tariffs. The problem with this from their point of view is that that will spell the end for any number of Ukrainian businesses. But WTO entry will do the same thing. It is better to get them used to it now. If can be more gradual than a kind of shock therapy, but there must be more movement in that direction. But there seems to be not much at all.
All of this said though, the people still have confidence in Yuschenko and Tymoshenko. Their popularity has only increased recently. And maybe there is some sort of strategy in all of this. One can only hope.
Wednesday, May 04, 2005
A trip
We just came back from a visit to the country and the in-laws (and extended family) over Easter, the Orthodox Easter. We would call it as I did, a visit to the relatives in the country. But here they call it visiting the village. The village is a generalized place but it is also a life style. Maybe I’ll go into it more in other postings—after that is, I get to the other things I have been meaning to write about here and haven’t yet. But it was a relaxing stay, even though the facilities are only a little bit better than you might get camping. (There was an indoor shower—a real innovation there-- but nothing else.) The inconveniences were more than made up for, though, by the hospitality.
We worked a little on the land there planting corn and tomatoes along with some Chinese cabbage they call it, but which looks and tastes to me more like a type of lettuce. That was hard work for people accustomed to sitting and to apartment life but it was enjoyable, and again, relaxing.
There was no machinery for us to use so if we wanted to prepare a plot for planting ourselves, we had to spade it, by hand. Some people do this for whole acres. My in-laws had a guy come over with a tractor do the work on their back piece. They paid him for it in cash. A few years back, they would have expected to pay for it with a couple of glasses or vodka at the kitchen table and some talk between men. But times have changed. But even they spade the smaller parcels by hand.
It was interesting to me that anyone could have a new tractor out there but we saw two of them. The guy who plowed for my in-laws had one; the other we saw on the way home. But the economics out there in the village do not support what would be needed to buy a new tractor. For one thing, there is no credit to speak of. Banks here do not loan money to farmers at any period of time longer than a year. And the interest rates are high, more than double what would be available in the US.
And most of the agriculture is for local use anyway. It is not sold to a wholesaler for the most part to make a profit. If any money is needed, a basket or boxes are loaded up and the farmer or his wife makes his or her way to the market in the nearest city and sells at cut rates because of all the other produce at the market there from other farmers trying to do the same thing. If they want to sell at a higher price, they may catch the bus to Kiev and sell it on the streets of the city, dodging the police as they do. (The police here often confiscate the produce because they have no license to sell. But that has meant that the produce has just changed hands ending up with the police officers to take home-- free. They get something for nothing and do it under the color of the law.)
So there are a lot of people in various areas of Kiev selling produce on the streets. And they do it for not all that much in return even if the price they can charge is higher than in the outlying cities. A few hryvna here and there, nothing in the amounts that a farmer would need to pay for a tractor in cash, a tractor which cost $15,000. So how do they do it?
Some say that they sell apartments in the city and that gives them enough money to buy a tractor. That is believable because property values have rocketed in the past few years here in Kiev. Others say that criminal interests are looking for places to launder cash. The story is that the tractor is paid for with illicit cash and given to the farmer who then uses it to make money with a portion going to the guy who purchased it. This one is hard to believe not because money is not being laundered here; it is. It is hard to believe because of the amounts they could get in return from that kind of work. In the village the equivalent of $10 is a lot of money. Officially, people in the village live on as little as $8 a month. Some do. This is, however, what the figure would be for everyone if you looked at what they would get from farming. But they often have a family member working in construction in the larger cities and that money is what they use to pay for things like electricity or gas and the like. They might make upwards of $200 a month doing this during the building season, but the work is on and off and there is always competition from workers coming in from other areas. Even with the money coming in from outside, though, $10 is still a lot to fork over for work done.
We did see some farmers with used tractors. That surprised me. There were at least four or five tractors in the little village we were in. That village had only about 300 people but the problem is money still. Where would they get any money for even a used tractor? The other problem is that for all but a few that have escaped into the market, most of the tractors were held by the collectives of the Soviet Union. With the collapse, these collectives were split up and the land was parceled out to the farmers in the area. The machinery, on the other hand, ended up with some cooperatives. These cooperatives were simply repackaged collectives with the same boss on top, reaping most of the profit much as he did before.
Other tractors did end up in the hands of some enterprising—read: capitalist—farmers. These guys acted quickly enough, and, some would say with enough foresight, to simply drive off with the machinery. Or they had the contacts in power needing something they could supply who just gave them the tractor as a return of the favor. Here it has been the case that if you have it and can keep it, it is yours. One guy we passed ended up with a couple of tractors and a combine all for his own use. He is now doing well but you gotta think that that was nothing more than looting.
The rest just spade their fields by hand and harvest with a scythe much as their ancestors have done for millennia. We saw old women in the fields spading and planting by hand. If the plants needed water like ours did, they would have to haul it out to the fields by hand. There are not all that many cars in the village there either just as there are not many in the other villages here either. (We hauled it in the car and when we ran out had the kids go fetch some more.) These people, on the other hand, had to haul it out themselves if they needed it—no children were to be seen. But that is what they have done their whole lives. What we saw them doing was no different than what they did last year and the year before that and the year before that. For them it is what is done from year to year.
The cooperatives here are where the only serious agricultural production is being done on a wide scale. But their efforts are pitiful and the results are the same. Often the guy who ended up on top after the collapse is the one who rakes in the money while those on the bottom are left with virtually nothing.
The cooperative my father-in-law belongs, for example, has a contract with him to use some of his land to plant sugar beets. The cooperative has their people come on the land, till it and plant it with sugar beets. The contract he has with the cooperative has the profits from the planting and harvesting being split up as per the agreement. That “per agreement” has had a tendency to change from year to year depending on the big boss. In fact, it has gotten smaller and smaller over the years. What my father –in-law has ended up with for the use of his property in the past couple of years is about 450 hryvna, or about $90 per year. And this is not $90 cash. The big boss gives them payment in kind with the sugar processed from the sugar beets. That sugar must then be sold by my father-in-law to get the cash value. You can see why the big boss does this. It is much better to cancel debt in kind than it is to use cash to do it. It is simply good business.
In a real show of the business abilities of this guy, they planted 100 hectares (about 250 acres) in sugar beets last year but ended up harvesting only about 30 of those hectares. (About 75 acres.) Why didn’t they harvest the rest? They did’t have the trucks to haul the beets to the processing plant. The rest were left to rot in the field.
All of the buildings of the cooperative are run down and on the verge of collapse. All of the machinery of the cooperative is wearing down and is on the verge of becoming useless. They had a number of trucks but are now down to two with a bed size about that of a couple of pickup trucks. This is a problem if they have to haul a lot of produce to be processed—like 100 hectares of sugar beets. They have to make a significant number of trips to haul it.
And they are now down to two tractors where once they had more than five. They have two harvesters but the rusting hulks of another three are still to be seen there on the property. Why is this? Because the big boss hasn’t put anything back into the business. The people say that he is a bandit and he might be. But if he were a bad businessman, the end would be the same.
In talking to him, his solution is to find an investor. No one would be willing to invest in a operation run like that. So the cooperative limps on from year to year with the farmers getting the short end.
One afternoon, we were standing on the in-laws property looking at this beautiful rich dark soil that Ukraine has a lot of. I pointed to that soil and told my mother-in-law that that was the great asset of the Ukraine. But then I pointed at the buildings and the rusting machinery of the cooperative which we could see from where we were and I said, “But Ukrainian farmers have ended up with that.” A real shame. But they can do nothing else. The ones who ended up with nothing other than land after the collapse can do nothing other than what they are doing because the machinery to work their land is in the hands of the cooperative or of the those who drove it out when the gate was left open.
This is something that we are going to try to work on. The villages here are dying because there is no money to be had there and so no future of the kids. They all want to go to the big city, Kiev, to make their way. But they come here and find that they might get work but it is at less than minimum wage—about $40 a month-- and they end up, some of them, living in a box. We would call it being homeless but for some people here it is living. They have work but they live in a box.
One woman we know of came here from the west part of the Ukraine which is a very poor area of the country. She ended up with a job selling things at a local open air market making just a couple of dollars a day. The only place she could find was a little bed in stall at the open air market where she worked. So she lived there. She now works as a nanny for a woman in Kiev so she has a roof over her head now. But she is not alone in this. A lot of others are finding this when they come here.
The thing to do is to make farming profitable for them. If it does, other businesses will need to be close by to support farming. That means jobs for locals. And if, as I think will happen, large firms end up farming the land here like they do in many other countries, there will be people around still to work, people who like to work with the land. Technology only gets you so far in farming. People still need to do some things. And it is hard to attract people out of the cities once they get established there to come back and work in farming. They don’t want to be bothered with it.
Anyway, we are home. That means looking out the window at drab Soviet apartment blocks instead of out at green trees and dark earth. Bummer.
We worked a little on the land there planting corn and tomatoes along with some Chinese cabbage they call it, but which looks and tastes to me more like a type of lettuce. That was hard work for people accustomed to sitting and to apartment life but it was enjoyable, and again, relaxing.
There was no machinery for us to use so if we wanted to prepare a plot for planting ourselves, we had to spade it, by hand. Some people do this for whole acres. My in-laws had a guy come over with a tractor do the work on their back piece. They paid him for it in cash. A few years back, they would have expected to pay for it with a couple of glasses or vodka at the kitchen table and some talk between men. But times have changed. But even they spade the smaller parcels by hand.
It was interesting to me that anyone could have a new tractor out there but we saw two of them. The guy who plowed for my in-laws had one; the other we saw on the way home. But the economics out there in the village do not support what would be needed to buy a new tractor. For one thing, there is no credit to speak of. Banks here do not loan money to farmers at any period of time longer than a year. And the interest rates are high, more than double what would be available in the US.
And most of the agriculture is for local use anyway. It is not sold to a wholesaler for the most part to make a profit. If any money is needed, a basket or boxes are loaded up and the farmer or his wife makes his or her way to the market in the nearest city and sells at cut rates because of all the other produce at the market there from other farmers trying to do the same thing. If they want to sell at a higher price, they may catch the bus to Kiev and sell it on the streets of the city, dodging the police as they do. (The police here often confiscate the produce because they have no license to sell. But that has meant that the produce has just changed hands ending up with the police officers to take home-- free. They get something for nothing and do it under the color of the law.)
So there are a lot of people in various areas of Kiev selling produce on the streets. And they do it for not all that much in return even if the price they can charge is higher than in the outlying cities. A few hryvna here and there, nothing in the amounts that a farmer would need to pay for a tractor in cash, a tractor which cost $15,000. So how do they do it?
Some say that they sell apartments in the city and that gives them enough money to buy a tractor. That is believable because property values have rocketed in the past few years here in Kiev. Others say that criminal interests are looking for places to launder cash. The story is that the tractor is paid for with illicit cash and given to the farmer who then uses it to make money with a portion going to the guy who purchased it. This one is hard to believe not because money is not being laundered here; it is. It is hard to believe because of the amounts they could get in return from that kind of work. In the village the equivalent of $10 is a lot of money. Officially, people in the village live on as little as $8 a month. Some do. This is, however, what the figure would be for everyone if you looked at what they would get from farming. But they often have a family member working in construction in the larger cities and that money is what they use to pay for things like electricity or gas and the like. They might make upwards of $200 a month doing this during the building season, but the work is on and off and there is always competition from workers coming in from other areas. Even with the money coming in from outside, though, $10 is still a lot to fork over for work done.
We did see some farmers with used tractors. That surprised me. There were at least four or five tractors in the little village we were in. That village had only about 300 people but the problem is money still. Where would they get any money for even a used tractor? The other problem is that for all but a few that have escaped into the market, most of the tractors were held by the collectives of the Soviet Union. With the collapse, these collectives were split up and the land was parceled out to the farmers in the area. The machinery, on the other hand, ended up with some cooperatives. These cooperatives were simply repackaged collectives with the same boss on top, reaping most of the profit much as he did before.
Other tractors did end up in the hands of some enterprising—read: capitalist—farmers. These guys acted quickly enough, and, some would say with enough foresight, to simply drive off with the machinery. Or they had the contacts in power needing something they could supply who just gave them the tractor as a return of the favor. Here it has been the case that if you have it and can keep it, it is yours. One guy we passed ended up with a couple of tractors and a combine all for his own use. He is now doing well but you gotta think that that was nothing more than looting.
The rest just spade their fields by hand and harvest with a scythe much as their ancestors have done for millennia. We saw old women in the fields spading and planting by hand. If the plants needed water like ours did, they would have to haul it out to the fields by hand. There are not all that many cars in the village there either just as there are not many in the other villages here either. (We hauled it in the car and when we ran out had the kids go fetch some more.) These people, on the other hand, had to haul it out themselves if they needed it—no children were to be seen. But that is what they have done their whole lives. What we saw them doing was no different than what they did last year and the year before that and the year before that. For them it is what is done from year to year.
The cooperatives here are where the only serious agricultural production is being done on a wide scale. But their efforts are pitiful and the results are the same. Often the guy who ended up on top after the collapse is the one who rakes in the money while those on the bottom are left with virtually nothing.
The cooperative my father-in-law belongs, for example, has a contract with him to use some of his land to plant sugar beets. The cooperative has their people come on the land, till it and plant it with sugar beets. The contract he has with the cooperative has the profits from the planting and harvesting being split up as per the agreement. That “per agreement” has had a tendency to change from year to year depending on the big boss. In fact, it has gotten smaller and smaller over the years. What my father –in-law has ended up with for the use of his property in the past couple of years is about 450 hryvna, or about $90 per year. And this is not $90 cash. The big boss gives them payment in kind with the sugar processed from the sugar beets. That sugar must then be sold by my father-in-law to get the cash value. You can see why the big boss does this. It is much better to cancel debt in kind than it is to use cash to do it. It is simply good business.
In a real show of the business abilities of this guy, they planted 100 hectares (about 250 acres) in sugar beets last year but ended up harvesting only about 30 of those hectares. (About 75 acres.) Why didn’t they harvest the rest? They did’t have the trucks to haul the beets to the processing plant. The rest were left to rot in the field.
All of the buildings of the cooperative are run down and on the verge of collapse. All of the machinery of the cooperative is wearing down and is on the verge of becoming useless. They had a number of trucks but are now down to two with a bed size about that of a couple of pickup trucks. This is a problem if they have to haul a lot of produce to be processed—like 100 hectares of sugar beets. They have to make a significant number of trips to haul it.
And they are now down to two tractors where once they had more than five. They have two harvesters but the rusting hulks of another three are still to be seen there on the property. Why is this? Because the big boss hasn’t put anything back into the business. The people say that he is a bandit and he might be. But if he were a bad businessman, the end would be the same.
In talking to him, his solution is to find an investor. No one would be willing to invest in a operation run like that. So the cooperative limps on from year to year with the farmers getting the short end.
One afternoon, we were standing on the in-laws property looking at this beautiful rich dark soil that Ukraine has a lot of. I pointed to that soil and told my mother-in-law that that was the great asset of the Ukraine. But then I pointed at the buildings and the rusting machinery of the cooperative which we could see from where we were and I said, “But Ukrainian farmers have ended up with that.” A real shame. But they can do nothing else. The ones who ended up with nothing other than land after the collapse can do nothing other than what they are doing because the machinery to work their land is in the hands of the cooperative or of the those who drove it out when the gate was left open.
This is something that we are going to try to work on. The villages here are dying because there is no money to be had there and so no future of the kids. They all want to go to the big city, Kiev, to make their way. But they come here and find that they might get work but it is at less than minimum wage—about $40 a month-- and they end up, some of them, living in a box. We would call it being homeless but for some people here it is living. They have work but they live in a box.
One woman we know of came here from the west part of the Ukraine which is a very poor area of the country. She ended up with a job selling things at a local open air market making just a couple of dollars a day. The only place she could find was a little bed in stall at the open air market where she worked. So she lived there. She now works as a nanny for a woman in Kiev so she has a roof over her head now. But she is not alone in this. A lot of others are finding this when they come here.
The thing to do is to make farming profitable for them. If it does, other businesses will need to be close by to support farming. That means jobs for locals. And if, as I think will happen, large firms end up farming the land here like they do in many other countries, there will be people around still to work, people who like to work with the land. Technology only gets you so far in farming. People still need to do some things. And it is hard to attract people out of the cities once they get established there to come back and work in farming. They don’t want to be bothered with it.
Anyway, we are home. That means looking out the window at drab Soviet apartment blocks instead of out at green trees and dark earth. Bummer.