Ukraine - Overview of economy

As a former member of the Union of Soviet Socialist Republics (USSR), Ukraine was once deeply integrated into the former Soviet economy, particularly in the agricultural and military industries. Ukraine's fertile black soil accounted for an estimated one-quarter of Soviet agricultural output. Its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Similarly, Ukraine's diversified heavy industry supplied equipment and raw materials to industrial and mining sites in other republics of the former USSR.

Ukraine was the second most important economic component in the former Soviet Union.

Since gaining independence in 1991, Ukraine's economy has contracted substantially. The gross domestic product (GDP) has fallen steadily over the past decade, and only recently has it begun to rebound. Overall, Ukraine's GDP fell more than 60 percent since it declared independence from the Soviet Union in August 1991. However, these official figures overstate the fall in output, since the informal economy has been expanding beyond the reach of government regulations and taxes. Estimates for the informal sector or black market (whose economic activities are unregulated and untaxed) economy range as high as 60 percent of the total GDP.

As in the Soviet days, the government remains the dominant player in the economy. It still pays subsidies to the agricultural, transport, telecommunications, and housing sectors. These subsidies are paid to keep full employment , and the slow speed of privatization allocates substantial resources to state-owned enterprises, which are still quite prevalent in the economy. In 1999, government expenditures were $8.8 billion.

The year 1998 saw moderate economic growth of 0.2 percent in the first half of the year. However, financial crises in both Asia and Russia had a strong influence on Ukraine's economy, and the GDP decreased by 1.9 percent by the end of 1998 and then by 0.4 percent in 1999. Buoyed by a significant real devaluation of the hryvnya in the wake of the Russian crisis, Ukraine's economy started to show signs of a new recovery in late 1999. In 2000, GDP grew 6.0 percent from 1999, with the highest growth rates achieved in import-substituting (textiles and food) and export-oriented industries (metallurgy and chemicals).

The nation's major industries are coal and electric power, ferrous and nonferrous metals, machinery and transport equipment, chemicals, and food-processing. Ukraine also has considerable agricultural exports. These include grains, sugar beets, sunflower seeds, vegetables, beef, and milk.

Over the past several years, inflation has been low, prices liberalized , and the currency, the hryvnya, relatively stable. The country's continual decline in industrial production has slowed down in recent years. The greatest economic achievement of the government has been to bring inflation down progressively from the hyperinflation of 1993—when inflation rose to 10,000 percent (making the currency essentially worthless)—to 10 percent in 1997. Inflation was even lower during the first half of 1998, but prices rose sharply in late 1998 after the steep drop in the Russian ruble led to a significant (though more modest) depreciation of the Ukrainian hryvnya. Total inflation for 1999 was 20 percent, and for 2000, 25.8 percent. In February 2000, the exchange rate was about 5.59 hryvnya per U.S. dollar.

The first 3 years of privatization, from January 1995 to January 1998, resulted in the selling off of 45,000 small businesses and 8,000 larger enterprises. By 2000, more than 67,000 enterprises had been privatized, including more than 7,000 medium- and large-scale industrial enterprises. For small-scale enterprises, privatization is virtually complete. The sale of larger enterprises has been slowed by a lack of supporting legislation for privatization, resistance from some local authorities and the management of large enterprises, and extensive parliamentary opposition. The main opposition to further privatization is the belief that such programs will result in higher unemployment.

Corruption is one of the biggest problems plaguing Ukraine's economy. According to the U.S. State Department, corruption is present in much of Ukraine's government, judiciary, and law enforcement, with no meaningful work being done to eradicate it. Such problems have been a major impediment to increased foreign investment.

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