Sat Dec 24th, 2005 at 04:54:28 AM EST
From the front page (with title edit) ~ whataboutbob
"All Quiet on the Western Front, or Political Weather Forecast for Ukraine and Belarus"
The euphoria is over. The Orange revolution in Ukraine flushed away some unpopular figures from the political scene, but was unable to deliver on expectations. Everyday life has not changed much for most of the people. The economy is still in a poor shape, and is suffering from structural issues, obsolete technology, low energy efficiency, etc, inherited from the Soviet era. In an attempt to boost its approval rate, the government raised minimum pensions and paid off deferred salaries. That move further strained the budget. As usual, the choices are limited: to raise taxes, increase national debt, or money supply. Most governments opt for the second solution. But how much more debt the market can absorb? In March 2006, the administration will face parliamentary elections, and may need another populist move in support of its program.
When a presidential candidate, Mr. Yushchenko promised to push for Ukraine's integration with the European Union and NATO. Realistically though, Europe is not ready yet to accept Ukraine in the foreseeable future. There are a few reasons for that, both economic and political. First, Europe has already grown eastwards far enough, and now faces a daunting task of bringing a number of former communist nations up to speed. Another member the size of Poland with even more troubled economy may be too much for the EU for quite some time. Besides, the European Union does not want to end up in confrontation with Russia, which considers Ukraine a "zone of its strategic interests".
Having been a part of the soviet economy for a log time, Ukraine shares same structural features with Russia and other former republics of the USSR. Almost every factory was a monopoly, at least in its region. Duplication was something that had to be prevented as a waste of resources, unless serving a certain military program. All enterprises received everything they needed - development funds, equipment, parts, raw materials, etc - according to a plan, put together by the State Planning Committee every year. That system ensured artificially low prices on oil, natural gas, mineral resources. No wonder that the economy of the former USSR collapsed as soon as the government control over foreign trade was lifted. Manufacturers simply lost their suppliers and customers. In the environment of legal vacuum, that created lucrative opportunities for those who were able to get on top of the privatization process (read, property grab) that followed. On many occasions, proceeds from sales overseas never came back, left on accounts in foreign banks. Deprived of investments, unable to modernize, having limited market for their production, manufacturing enterprises struggle to survive. Hopefully, China has learned from its neighbor's mistakes.
Ukraine and Belarus, having almost no natural resources, hosts of mostly machinery, high-tech and defense industries, were hit the hardest. Russia remains the main market for their products and services, and their main oil and gas supplier. At present, "six oil refineries in Ukraine, four of them owned or controlled by Russian companies and all operating on Russian crude, hold an aggregate 90% share of Ukraine's oil product market." Natural gas accounts for 42% of the total energy consumption in Ukraine. More than 40% of it is imported from Russia. Most importantly, gas is widely used in central heating systems in major cities, as well as in almost every kitchen there. As a result, urban population is very sensitive to gas prices.
Basically, that makes Gazprom, the world's largest natural gas producer, controlled by the Russian government, an important instrument of foreign policy. This year, Ukraine pays Gazprom $50 per 1,000 cubic meters of gas. Starting from January 2006, the price should rise to $160. At the same time, the price for Belarus will stay at $50, after Belarusian President Alexander Lukashenko confirmed his commitment to his country re-unification with Russia.
Actually, for Mr. Lukashenko that may be the dream final of his political career. Nobody expects anything less than Belarus joining the Russian Federation. This will guarantee Mr. Lukashenko full amnesty for his crimes, abuse of power and misdeeds. He will end his days in a mansion somewhere at a Black Sea, enjoying the fortune he has been amassing since in office. Almost all Belarusians will welcome the re-unification. The nationalistic movement there can be visible at times, but has limited popular support. Most people consider Russian their native tongue. Economically, Belarus will also be better off as a part of Russia, bordering the EU. From my point of view, if there is any force in Belarus that can remove Mr. Lukashenko from power, most likely it will be the pro-russian, rather than pro-independence movement.
Even in Ukraine, I expect a shift in policy back towards closer cooperation with Russia. Mr. Yushchenko is a pragmatic leader who will have to find a balance between his European dreams, and political and economic reality.
Crossposted at Daily Kos.