Ukraine

UKRAINE IS A COUNTRY located in eastern Europe and is the second-largest on the continent, with a population of approximately 48 million. It is bordered by Russia, Belarus, Moldova, Romania, Hungary, Slovakia and Poland, as well as the Sea of Azov and the Black Sea.

Historically, Ukraine has been dominated by external forces, particularly the Polish-Lithuanian state, and later Russia. Ukraine formed part of the Union of Soviet Socialist Republics until its breakup, and subsequently declared independence in 1991. Ukraine is categorized as a lower-middle-income country with an annual per capita Gross National Income of $970 in 2004.

Independence necessarily coincided with the withering of Russian influence and this had an immediate and serious economic impact, including energy price shocks, decreased demand from the military sector, and worsened trade relationships. These problems coincided with political instability and misrule, and together the negative impacts on the economy were severe, with Gross Domestic Product (GDP) decreasing by as much as 25 percent per annum in the early to mid-1990s. Demand for labor declined as did real wage rates, while household savings were obliterated by a blast of hyperinflation, which reached 10,000 percent. Reductions in government budgets meant that social welfare was greatly reduced and was revealed, in any case, to have many inefficiencies in targeting.

This situation has subsequently improved, with strong economic growth that, nevertheless, brought the country to only 40 percent of its 1990 GDP. By the turn of the century, 27 percent of Ukrainians were living below the poverty line and three percent were living in extreme poverty. Prospects for future growth depend on a wide range of industrial activities. Agriculture, which accounts for 12 percent of total GDP, is likely to be a leader in driving economic growth, although considerable reorganization of farming after the end of collectivization has been required.

Privatization of previously government-owned assets has also been a notable feature of recent development and has been of the usual mixed effects. Although the informal sector has grown in size and scope in the past 15 years, it has not been sufficient to offset the problems caused by both open and hidden unemployment. A considerable and largely unquantified growth in the shadow economy has also been problematic, as it leads to less work security for workers and lower government revenue because of tax avoidance, among other issues.

Poverty is most commonly characterized by large households with few members able to earn sufficient income to meet the needs of all. The elderly are particularly susceptible to poverty because of their inability to work for high income and the loss of their savings. Rural poverty seems to be no worse than urban poverty and possibly a little better through easier access to food. A particular problem is that facing those affected by the nuclear reactor emissions at Chernobyl, since poor health and forced evacuation of the town have left them with few opportunities to earn sufficient income. The Chernobyl Fund is a 12 percent levy on labor wages that acts further to depress wage rates and does not provide adequate compensation in properly targeted transfers.

...