Leonid Grigoriev is President of the Energy and Finance Institute. Marsel Salikhov is an expert with the Economics Department of the Energy and Finance Institute.
The drama of the New Year`s gas conflict between Russia`s Gazprom and Ukraine`s Naftogaz can be understood only if one takes into consideration the underlying economic causes of the problem. These should be analyzed from the corporate, economic and political points of view, while remembering that certain norms, as well as the slant of the global mass media, play a part in the analysis. Leaving aside the political aspects, let us focus on the corporate and economic features of this conflict.
THE DRIVING FORCES OF UKRAINE`S ECONOMY
Economic growth in Ukraine in 2000-2005 was so great that it aroused euphoria and influenced the situation in the country, not to mention other members of the Commonwealth of Independent States (see Diagram 1). The Orange Revolution in Ukraine in the autumn of 2004 took place against the background of a considerable increase in the standard of living and macroeconomic stabilization, characterized by a budget surplus and a decrease in inflation to a level below that in Russia. One could expect that after such an improvement in the financial status of Ukrainian citizens, they would begin to demand greater social justice, a more responsible government and the reduction of corruption. The democratic component of the Orange Revolution arouses natural sympathy and corresponds to the transition from a protracted crisis to the normalization of economic and political life. At the same time, in the political arena of transitional economies the interests of conflicting financial and industrial groups, for which access to power is a critical factor of existence and development, usually play a major role. These interests certainly played a role during Ukraine`s power struggle in the autumn of 2004, and influenced Kiev`s policy in 2005.
In order to continue reforms amidst competition between various public forces and financial groups, and to avoid administrative obstacles to reaching decisions, Ukraine needs a sophisticated mechanism for compromise decision-making. The threat from the new government, led by Yulia Tymoshenko, to nationalize and re-privatize 3,000 enterprises in 2005 failed. Only the Krivorozhstal steel company, which was a matter of principle for the government, was re-privatized - and at a very high price. Several controversial (one might add "non-market") moves by that government proved fatal for it. On January 10, 2006, Verkhovna Rada voted to fire Prime Minister Yuri Yekhanurov, who had earlier replaced Tymoshenko at the post, and his Cabinet; they were permitted to serve as acting ministers until elections in March. The legislators thus disassociated themselves from the government`s unpopular decisions.
08.05.2006
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