Corruption, Inefficiency and More: Causes of Poverty in Ukraine

https://www.borgenmagazine.com/causes-of-poverty-in-ukraine/

KIEV — Ukraine, a former economic powerhouse for the Soviet Union, once produced four times the output of the next-ranking republic and enjoyed a wealth of fertile black soil for farming and a growing heavy industry. However, after the fall of the Soviet Union, Ukraine’s economy began to suffer. The government tried to liberalize prices, but reform was halted after resistance was met within the government.

As a result, the economy fell to the point that in 2009 Ukraine had one of the worst economic performances in the world. Today, the gross domestic product (GDP) stands at $352.6 billion — 50th in the world. Ukraine’s GDP is surprisingly low considering its possession of all the tools for a successful, production based economy with thriving agricultural and industrial industries.

Therefore, poverty is a major concern, with 24.1 percent of the country’s citizens below the poverty line.

How did a nation with such promise end up with such a disappointing economy?

Ukraine’s economic woes can be traced back to failures by the government to resolve disputes and agree on reform, as well as widespread corruption and political instability. Poverty in Ukraine was at its highest in the 1990s, when hyperinflation abounded following the fall of the Soviet Union, as huge monetary expansion was necessary to finance government spending.

However, while this expansion was able to finance government spending to a degree that they could work on reforms that would stop hyperinflation, it was too late for the people of Ukraine who lived in poverty.

What are the main causes of poverty in Ukraine?

One of the main causes of poverty in Ukraine from the early 2000s to today is the government’s complacency in providing reforms that would stabilize the economy. Aforementioned heavy industry exports were booming, and Ukraine was especially successful in providing exports to Russia.

Instead of investing in reforms that would result in long-term stability and a middle-class income for many citizens, government officials chose instead to appeal to their own interests.

Ukraine has struggled with corruption at the highest levels of its government, with the Panama papers exposing widespread corruption at every level and industry. The Mossack Fonesca files — the law firm at the heart of the Panama Papers — exposed Ukrainian corruption going back to the earliest days of independence, when money was laundered offshore.

So what’s Ukraine’s solution?

It is impossible to grow an economy when the government officials are putting money in their own pockets, and therefore, the only way to sustainably improve the economic situation of Ukraine and to draw Ukraine’s people out of poverty, is to engage in necessary reforms and take steps to halt corruption.

Although pervasive corruption continues to be problematic, Ukrainian citizens have seen some hope following the most recent International Monetary Fund (IMF) assistance package of $17.5 billion, and reforms instituted after the Revolution of Dignity in 2014. These reforms are designed for democratic transparency, which is a great first step in a history of corruption.

The assistance package and recent reforms have sent Ukraine in the right direction, as was recently reported in June 2017 that the average salary (UAH) reached an all-time high of 7360 UAH, an increase from 6840 UAH in the previous year.

So, while there is still plenty of work to be done — a better legislative framework, more solutions to combat corruption and a development of capital markets — the causes of poverty in Ukraine are gradually being solved, and the future is looking brighter than ever before.