A CLOSER LOOK: Did Orange ruin the Ukrainian economy?
by Alexander J. Motyl
The conventional wisdom has it that Ukraine's economy went into a tailspin in 2005 and that this was entirely the fault of economic mismanagement by the Orange government of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. Accordingly, as that government pursued populist policies, rattled the business community and scared off foreign investors with misguided schemes of re-privatization, the Gross Domestic Product (GDP) "plummeted."
The rather more mundane reality is that GDP growth rates did decline, but that Orange just can't be blamed for the lion's share of that decline.
Great story, lousy analysis
First of all, keep in mind that GDP has been growing steadily throughout 2005. What has declined, in comparison to 2004, is the rate of growth. That's a big difference.
The official numbers provided by the State Statistics Committee of Ukraine - which are the figures that everyone writing about the Ukrainian economy routinely cites - nicely illustrate this decline. The figures below (see box) show year-on-year growth rates for 2004 and 2005.
The data show that 2004 was a great year for the Ukrainian economy. 2005 looks much worse (though do keep in mind that the 2005 figures are, when compared to other economies, quite respectable).
But look at the numbers more closely. While 2004 ended with a cumulative 12 percent GDP growth rate, in January 2005 GDP growth was only 6.5 percent. Clearly, the growth rate had already "plummeted" before the Orange government had even come to power.
Now, you can blame lots of things on a government, but you just can't hold it accountable for developments that preceded it. If you do, then you may as well attribute 2004's phenomenal growth rates to Mr. Yushchenko and Ms. Tymoshenko as well.
Now consider something else. As any policy-maker will tell you - and as anyone with a checkbook and salary knows - there is always a time lag between the passage of policy, the implementation of policy and its actual effect on anything. Economic policies generally don't affect the real economy for several months. And, as we know, Ukraine's government bureaucracy is notoriously inefficient. Hence the lag between the time the Ukrainian government adopts a policy and the time the policy actually goes into effect may be more than several months.
Take these two factors into account and it's clearly impossible to blame much of the GDP growth rate decline in, say, the first half of 2005 on the Orange government.
This pretty obvious conclusion does not mean that Orange economic policies were good or that they will not have a negative effect somewhere down the line. It's only to say that we really can't know now just what that effect will be later.
For example: Like many Orange critics, I happen to believe that Ms. Tymoshenko's obsession with re-privatization, and her unwillingness or inability to specify just which enterprises would be subject to re-privatization, was a profound mistake that must have scared investors. But the degree to which that obsession actually harmed the economy is something one can, at this point in time, only surmise or predict.
The next 12 months will presumably show whether or not, and to what degree, Mr. Yushchenko and Ms. Tymoshenko actually ruined or fixed the economy. Then, and only then, may critics of Orange be proven right, or wrong.
So what gives?
If the Orange government can't be held responsible for much, perhaps even most, of 2005's rate of decline, then who or what can? Several explanations come to mind:
The fact is that all these factors probably played some role - a conclusion that is as painfully obvious as it is important for understanding what's really going on in Ukraine's economy.
So what does this all mean?
The good news is that Orange may not have been all that bad for the Ukrainian economy.
The less-than-good news is that maybe it was. In any case, it's too soon to tell.
The not-so-good news is that, even if the current government of Yuri Yekhanurov does everything "right," Ukraine's GDP growth rate need not rebound immediately to the heights of 2004. After all, there may be many internal and external reasons for the decline ,and Orange really may have gotten things very wrong.
The bad news is that too many commentators have overlooked pretty elementary data in their desire to paint the Orange government as uniquely incompetent.
But the pretty good news is that unbalanced analyses are, unlike perhaps the Ukrainian economy, easy to set right.
Year-on-year growth rates
| January 2004 to January 2003 | 109.0 percent |
| January-February 2004 to January-February 2003 | 110.2 percent |
| January-March 2004 to January-March 2003 | 110.8 percent |
| January-April 2004 to January-April 2003 | 111.5 percent |
| January-May 2004 to January-May 2003 | 111.3 percent |
| January-June 2004 to January-June 2003 | 112.7 percent |
| January-July 2004 to January-July 2003 | 113.5 percent |
| January-August 2004 to January-August 2003 | 113.6 percent |
| January-September 2004 to January-September 2003 | 113.4 percent |
| January-October 2004 to January-October 2003 | 112.7 percent |
| January-November 2004 to January-November 2003 | 112.4 percent |
| January-December 2004 to January-December 2003 | 112.0 percent |
| January 2005 to January 2004 | 106.5 percent |
| January-February 2005 to January-February 2004 | 105.5 percent |
| January-March 2005 to January-March 2004 | 105.4 percent |
| January-April 2005 to January-April 2004 | 105.0 percent |
| January-May 2005 to January-May 2004 | 104.7 percent |
| January-June 2005 to January-June 2004 | 104.0 percent |
| January-July 2005 to January-July 2004 | 103.7 percent |
| January-August 2005 to January-August 2004 | 102.8 percent |
Alexander J. Motyl is professor of political science at Rutgers University - Newark. His latest book is a novel, "Whiskey Priest," published by iUniverse.
Copyright © The Ukrainian Weekly, October 16, 2005, No. 42, Vol. LXXIII
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