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29 August, 2011  ▪  The Ukrainian Week

1994-1998

Bagging the country

With a government that had no strategy for national development, economic reforms or European integration, and an opposition unable to offer reasonable alternative scenarios or exert pressure effectively on those in power, Ukraine ended up with an economy shaped by the logic of least resistance and quick profits. As a result, an oligarch system emerged, comprised of the following components: • Oligarchs used all kinds of tools including financial fraud, artificial debts and coercive pressure to grab or take under their control the juiciest, or at least potentially profitable objects, particularly steelworks and chemical plants that basically produced semi-finished components for other technological productions.

• This led to the subsequent distortion of the structure of Ukraine’s economy.

• Meanwhile, other industries, including engineering, hi-tech productions that needed huge investment before they could even compete at foreign markets, food and textile industries were decaying.

Even being swallowed by oligarch empires could hardly save them, since they turned into side businesses rather than central projects.

• SMEs remained neglected despite the favourable flat-rate tax system law passed in 1998. They had no access to cheap loans and real privatization, nor could they compete with oligarchs seeking control over medium-sized business, comprised of the food industry, farming, the hi-tech sector and others.

• The privileges lobbied by oligarchs for their businesses left gaps in the state budget. To cover them, the government increased tax pressure on businesses that had no such protection. This led to the inevitable decline of the investment climate in Ukraine.

• Ultimately, government decisions based on private interests rather than a comprehensive analysis of the situation were inefficient and often more troublesome than helpful.

In this section: 

The Dawn of the Oligarchs

The Triumph of Ruins

Ukrainian Oligarchs


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