Imposing austerity on Ukraine might not be so easy

The International Union of Food Workers reports today that workers at the Belkozin plant in Priluki, in northern Ukraine, have won a 54% wage increase, after a strike in May and a protracted negotiation. There’s a full report here: http://cms.iuf.org/?q=node%2F550

This is interesting, because right now the Ukrainian government and IMF are tiptoe-ing around the issue of how to implement an austerity package linked to the IMF’s gigantic programme of loans, put in place after the 2008 financial crisis – which hit Ukraine harder than almost any other European or former Soviet country.

I highlighted the rumblings in the official union federation, in response to the austerity programme, in a recent article in Emerging Markets newspaper:

http://www.emergingmarkets.org/Article/2684779/Search/Results/Union-threat-to-disrupt-Ukraine-IMF-deal.html?Keywords=khara

… and discussed the government’s nervousness on such issues as pension fund reform in a feature article here:

http://www.emergingmarkets.org/Article/2690747/Europe/UKRAINE-Tough-love.html

The Ukrainian workers’ movement, like that in Russia, has largely been quiescent since the mid-1990s. The burden of decades of dictatorship, the difficulties of throwing off the old union structures, the effects of industry being trashed … all have taken their toll.

But there’s no reason to think the movement will be quiescent for ever.

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Modernization is easier said than done

Russia’s political leaders talk about modernization a great deal. But shifting the economy away from dependence on oil and gas revenues is proving very difficult. I gave an overview of the dilemmas they face in a recent article here: http://www.emergingmarkets.org/article.asp?PositionID=search&ArticleID=2487832

China is displacing Russia economically in central Asia

China is not only investing billions of dollars in the oil and gas sector in central Asia, but is also ramping up its trade in consumer goods with the region. This is bound to weaken Russia’s economic influence in central Asia. I discuss some of the issues in an article here: http://www.emergingmarkets.org/article.asp?PositionID=search&ArticleID=2478245

$9bn+ import bill could renew gas conflict

Ukraine’s troubles with Russian gas and Russia’s troubles with Ukrainian transit are not over yet, even though there was a truce this winter. Although the next Ukrainian president, to be elected in second-round voting on 7 February, will be less antagonistic towards Russia than outgoing head of state Viktor Yushchenko, the underlying causes of the “gas wars” remain. In 2009, the government underwrote $6 billion plus of import payments, and the International Monetary Fund underwrote the government. Who will pay the 2010 import bills, likely to total $9 billion plus? See my comment in the Moscow Times here. http://www.themoscowtimes.com/opinion/article/preventing-new-gas-wars/398420.html

Russian power nervous of social protest

Russia’s economic recovery, if it has begun at all, is fragile. The recession has pushed 6 million more people into poverty, and in 2010 the government remains wary of social protest. That’s the gist of a BBC World Today radio interview I gave, which you can listen to here:  World Today interview 10.1.10

‘Recovery’? Not yet, not for Russian natural gas consumers

Those bankers may be back collecting their bonuses, and the financial press in the west may be talking about “green shoots” – but the “real economy” in Russia and the former Soviet Union will take years to recover from the crash.

The extent of the devastation was something I had to think about while working on a paper, just published by the Oxford Institute for Energy Studies (where I am a senior research fellow), entitled The Impact of the Economic Crisis on Russian and CIS Gas Markets. You can download it here: http://www.oxfordenergy.org/pdfs/NG36.pdf 

… and find plenty of other interesting stuff about the economics of the gas industry here: http://www.oxfordenergy.org/gasresearch.php

The industrial downturn in Europe, to which Russia exports much of its gas, as well as in Russia and the CIS, has trashed demand for natural gas – the revenues from which are a vital part of Russia’s wealth.

So in the first half of 2009, compared to the first half of 2008, European industrial output was down by about 15-22%, Russian gas sales to Europe were down by about a third, and the revenues from European sales for Gazprom, Russia’s state-owned gas company (and the country’s biggest firm) were down from $33.1 billion to $20.3 billion.

In Russia itself, where industrial output suffered the same sort of crash as in Europe, gas sales were down 6% year on year. But the real disaster area was Ukraine. Its steel industry pretty well packed up over the winter of 2008-09, with workers being put on short-time or sent on unpaid “holidays” within weeks of the Lehman Brothers crash. Its gas demand in the first half of 2009 went down by nearly 29% – and that was mainly because consumption by industry was cut by more than half.

I’ve argued in my paper that gas demand will get back to its 2007 level only by around 2012 in Europe, and only by 2015 – or even later – in the former Soviet Union. “Recovery” of western banks – which itself is far from assured, in any case – is a quite different thing from “recovery” for Russian and Ukrainian industry.

Russia’s social indicators ‘bad and deteriorating’

That’s the message from Zeljko Bogetic, the World Bank’s lead economist for Russia. Even the bank, which is always under political pressure to emphasise how quickly economies can recover, is saying that as a result of the economic crisis an extra 7.5 million Russians have sunk below the poverty line, that the poor now comprise 17.4% of the population (up from 12.1% a year earlier) and that the number classed as “vulnerable” has risen by 3.6 million.

My recent article, including interviews with Bogetic and other economists about Russia’s difficulties in escaping the effects of the crisis, is here: http://www.simonpirani.com/em-oct09.html.

The World Bank’s Russian economic reports are downloadable here: http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/RUSSIANFEDERATIONEXTN/0,,contentMDK:20888536~menuPK:2445695~pagePK:1497618~piPK:217854~theSitePK:305600,00.html