Tuesday, February 02, 2010

Last gasp of color revolutions? 

Many readers of this blog first found it via my coverage of the Orange Revolution in Ukraine, where I had worked in 1995-96 at its National Bank. (This was around November 2004 -- scroll the archive if you wish.) The governor at that time was Viktor Yushchenko, and his rise to the presidency in 2004-05 was one of the high points of U.S. foreign policy, along with a Rose Revolution in Georgia and democracy movements in Lebanon and elsewhere.

Sadly, most of those programs have fallen by the wayside. Georgia's democratic leaders have made a series of blunders and lost land and momentum to secessionist movements. Lebanon appears to have traded Syria for Iran in terms of foreign meddling. And in Ukraine the presidency of Yushchenko comes to an end with a whimper and many unfulfilled dreams.

Part of this was predictable. In order to secure a peaceful transition, Yushchenko bargained away much presidential power to the Parliament. Whomever controlled it would actually be more powerful than the president, and Yushchenko would have had to find ways to deal with that leadership. Alas, the two most powerful figures there were Orange Revolution heroine Yulia Tymoshenko, whose designs on power were obvious even during 2004-05, and the person who tried to steal the election in 2004, Viktor Yanukovych. Since peaceful transfer had to include a deal for him, his power base was never broken after Yushchenko took power and in first-round elections last week he rose to top of the polls again. Tymoshenko came in second; Yushchenko was an also-ran. After working with her in 2007 to help her win the premiership, the relations between the two soured.

So this Sunday the runoff occurs, and we tend to look sadly at the possible result. The Economist reviews the options between the two remaining candidates and argues "the biggest threat to Ukraine is its inability to govern itself." But the seeds of that were laid when the Orange Revolution did not permanently cripple the corrupt regime before it. To elect Yanukovych now would render it meaningless, Tymoshenko now argues. In fact, it's the only argument she has left.


Tuesday, January 12, 2010

No big man -- or woman 

Sadly, it comes to this for Ukraine.

It is humiliating for Ukraine that Mr Yanukovich, whose 2004 presidential campaign was widely seen as fraudulent, has not been hounded out of politics. He has survived thanks to a cynical political culture and the backing of big business. Even Mr Yushchenko has done deals with him.

Ms Tymoshenko should, in principle, be a more attractive choice, given her Orange credentials. But she has proved herself shamelessly opportunistic and shares the blame with Mr Yushchenko for the failures of the Orange camp. Her economic policies show a unnerving penchant for populist intervention, eg with arbitrary price caps.

In international affairs, both would balance ties with Russia with a slow push for European Union integration. Not much to choose between Ms T and Mr Y on this score.

So, whom to back in Sunday�s first round and next month�s run-off? Given the candidates� shortcomings, voters must focus on what is important. The key now is political stability. Only a stable Ukraine can achieve economic reform and recovery. Ms Tymoshenko is the polar opposite of a stabilising force. Mr Yanukovich, for all his manifest faults, may prove the lesser evil. Pity Ukraine that it has come to this.
One will recall long ago that Yushchenko had to make a constitutional deal to gain his victory, which left the government's real power in the fractious parliament, the Rada. Now, says LEvko, whomever wins will want to free themselves from the chains that bound Yushchenko.

Everyone favors democracy and freedom when they don't have power; the trick is to favor it when you do. Sacking it for the expediency of 'political stability' is no virtue.


Thursday, September 03, 2009

Perfect pulchritudinous competition 

I've enjoyed the discussion between Alex Tabarrok and Tyler Cowen on beautiful women. Tyler writes that one should apply location theory:

Pick then a city of your choice in a country of your choice. Ask where, in that city, can the beautiful women be found. Will you find them in the most globalized parts of the chosen city? Probably so. Will the least globalized parts of the city have less attractive women or perhaps even the least attractive women?

I also believe, in accord with my previous hypothesis, that you'll find the most beautiful women in the parts of the city where different income classes mix and there is lots of inequality among passersby. That's in a museum, or in the Village, not in a Tiffany store or even in most of the upper East Side.

This competition is everywhere. When I lived in Ukraine in the mid-90s, there was an area which contained most of the bars that Westerners, particularly men, would hang out. This place had most of the attractive women. Some, of course, um, provided fee-based services. But the more common female was one searching for a mate. They were quite aggressive, much like the Lebanese story Tyler tells from a couple years ago. Many Western males ended up ensnared in trysts that lead to demands that they dump their wives back home and bring these Olgas and Natashas back with them. The success rate of these women with married men was surprising and depressing.

In his interview with Russ Roberts, Christopher Hitchens noted that Orwell once observed that the most attractive, or most intelligent, or most athletic Indian male could not enter the British club in Burma, but the most attractive woman could get in by marrying a British officer. If location theory is right, there should be some excellent colonial stories that fit.

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Wednesday, January 14, 2009

Playing the cold card 

Mrs. S was taken over by a stomach flu Monday and stayed in bed. She often turns down the heat when in bed, so Tuesday morning when I woke it was -24 outside and only 53 inside. That shower I took reminded me of being in Ukraine, where we had no apartment thermostat (all heat and hot water was centralized by the city unless you installed an emergency hot water system.) In the winter I took many such showers. (Hint: take all your clothes in the bathroom with you, including shoes. I did that this morning.)

It'll be cold here all week. But I can't complain about the cold because in Eastern Europe it's much, much colder. -49C/-56F in Slovenia on Saturday colder. All of which is really annoying them with the Russians and Ukrainians fighting over gas.
Hungarian Prime Minister Ferenc Gyurcs�ny said this week it was unacceptable that �the bullets Ukraine and Russia shoot at each other hit Hungary.� Like other affected countries, it has set up gas-usage limits for consumers.

Eastern Europe has not seen such rationing since communist times. In Hungary schools were closed down during the week. Officials say they will compensate by sending children to school on weekends.

The Hungarian Ministry of Agriculture has handed out a list of food companies producing essential goods such as meat, milk and bread, and asked the government to ensure uninterrupted gas supplies.

Hungary has capacity to sustain some two months of heating public institutions and houses, 90 percent of which use gas, but only if it abandons all economic activity.
VOA News is also reporting on Hungarian gas shortages.

The Ukrainians understand this. They are in a very good strategic position, holding most of the gas lines than run to the EU as well as to the Caucasus. So it is trying to leverage that to get a good deal on its gas from the Russian firm Gazprom. It appears that Tuesday morning the Russians began to ship gas but were blocked by the Ukrainian side, even with international monitors supposedly present. (The Ukrainians blame Gazprom, naturally.) But as Stratfor points out the Russians have built a good buffer. I have noted that the January calendar normally contains a Russian-Ukrainian gas spat. This time, however, Stratfor thinks the Russians brought better weaponry to the fight.
...before 2004, the Russian-Ukrainian natural gas spat was simply part of business as usual. But now, Russia feels that its life is on the line, and that it has the financial room to maneuver to push hard � and so, the annual ritual of natural gas renegotiations has become a key Russian tool in bringing Kiev to heel.

And a powerful tool it is. Fully two-thirds of Ukraine�s natural gas demand is sourced from Russia, and the income from Russian natural gas transiting to Europe forms the backbone of the Ukrainian budget. Ukraine is a bit of an economic basket case in the best of times, but the global recession has essentially shut down the country�s steel industry, Ukraine�s largest sector. Russian allies in Ukraine, which for the time being include Yushchenko�s one-time Orange ally Yulia Timoshenko, have done a thorough job of ensuring that the blame for the mass power cuts falls to Yushchenko. Facing enervated income, an economy in the doldrums and a hostile Russia, along with all blame being directed at him, Yushchenko�s days appear to be numbered. The most recent poll taken to gauge public sentiment ahead of presidential elections, which are anticipated later this year, put Yushchenko�s support level below the survey�s margin of error. (h/t: Eclectecon by email.)
See also this analysis by Der Speigel, which finds that the EU was nevertheless caught flatfooted by this. My wager is that the Europeans are faced with enough trouble to help Ukraine solve this problem. The difference last we looked was about $49 per unit for the gas ($201 vs $250 per cubic meter.) When it only takes money to solve a problem, someone's money solves the problem. Whose, is the question. Russia's got a cash reserve, but the weather favors the Ukrainians.

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Tuesday, January 06, 2009

Ukrainian yawn 

The battle between Ukraine and Russia over natural gas, Jerome a Paris points out, are as old as Ukraine's independence. I haven't posted much about this because the battles have become annual events. I was reading through my book on Ukraine, published in 1998, and found this observation:
...the Russian government was still selling energy resources to Ukraine at less than half the world price it could receive. Ukraine was told by the Russian government that failure to adhere its currency policies to those of Moscow would result in being charged the full world price of oil and natural gas.
That refers to statements made in 1992. There are later references in the book to reductions in oil and gas imports in 1995 when the Ukrainians were sidestepping Russia by way of a trilateral barter arrangement which sent defense goods from Ukraine to Iran, who in turn paid the Turkmens to send natural gas to Ukraine. Gazprom basically bought the rights to the Turkmen spigot, preventing the Ukrainians from playing that game again.

LEvko notes that these contracts between Russia and Ukraine are always suspicious, going as far back as the mid-1990s, when current PM Yulya Tymoshenko was an energy executive. The contracts are not transparent:
It is this opaqueness that provides cover for continuing wide-scale fraud benefiting the two country's elites. These disputes have never been about gas prices and storage and transit rates, but about 'whose hands are in the middle-man's trouser pockets'.

Your blogger would suggest that it is not unreasonable to consider the current dispute is about elites both in Ukraine and Russia, fighting amongst themselves to maintain their piece of the action via these intermediaries, rather than the price of gas for Ukrainian consumers and its westward transit through the country which, as the Putin-Tymoshenko meeting illustrated, perhaps could be resolved without too many problems.
Ukraine is in pretty bad shape economically, and Tymoshenko and President Viktor Yushchenko are poised to run in elections against each other sometime in late 2009 (early parliamentary elections are expected in a few months). Right now Yushchenko is far behind, but Tymoshenko's star falls as this crisis drags on.

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Tuesday, December 23, 2008

The prices of corruption 

From a talk given by Daniel Kaufmann on his departure from the World Bank last week. This bribe fee table is from 1996; I was a USAID advisor to the National Bank of Ukraine when Dani was head of the World Bank office in the country at that time, and was the first of the researchers into corruption to come from that institution. We met a few times; I do not know him well, but his work was important to many of us working in the country. If you didn't pay the inspector, you were closed. If you needed to import or export anything to the country, you had to register. Each of these required a fee to be paid.

Two things: 1. For those of you that heard me talk about my book on Ed's show earlier today, this type of table is exactly the kind of data we look for, which is to seek things at the micro level. While I appreciate the work of Transparency International, their data is not a substitute for what Kaufmann and his researchers tried to accomplish at the Bank. For most of the important research, the micro-level data appears to be better.

2. Kaufmann quotes the governor of the National Bank of Ukraine, who spoke at a gathering for Kaufmann's departure (which I believe I attended):
But I want to acknowledge the most important thing that you did is that you made sure that neither the World Bank nor the IMF, for the first two years, gave us a cent in loans, because we basically were not ready. The cadre that was in power would never have reformed, and this would have perpetuated non-reforms.
The speaker of course is now-President Viktor Yushchenko. I wonder if the Bush Administration entertained this thought before agreeing to the auto bailout?

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Monday, August 18, 2008

Georgia: Reaction times 

It is becoming increasingly apparent that the Russian claim of Georgia starting the war are a stretch; it is also apparent that the Russian government was very ready.

Tom Lasseter visited the disputed South Ossetian capital of Tskhinvali on Sunday and found little evidence of a massive Georgian bombardment of the city, and not very many deaths.
Russian-backed leaders in South Ossetia have said that 2,100 people died in fighting in Tskhinvali and nearby villages. But a doctor at the city's main hospital, the only one open during the battles that began late on Aug. 7, said the facility recorded just 40 deaths.

...Col. Gen Anatoly Nogovitsyn, the deputy head of the Russian military's general staff, said last Tuesday that "Tskhinvali doesn't exist, it's like Stalingrad was after the war."

But in fact, the city still does exist. While there was extensive damage to some structures, most buildings had front doors on their hinges and standing walls. For every building charred by explosions � the Georgians are accused of using multiple rocket launcher systems � there were others on tree-lined streets that looked untouched.

One government center was hollowed out by blasts, but the one next to it teemed with workers.

The Guardian reports that the South Ossetian government has rounded up 130 Georgian nationals and is holding them in its interior ministry -- for what is unclear, though the article speculates it would be for a prisoner exchange. Interesting, in that South Ossetia is an area with only 70,000 people. How many of them could be captive of the Georgian army? And if there had been a massive bombardment of Tskhinvali, how do they organize this? Seems an odd thing for an area that had been supposedly flattened like Stalingrad to do.

Another interesting piece of evidence on reaction times comes from looking at the timing of the arrival of the Black Sea Fleet off the coast of Georgia -- both to move 4000 troops, and to engage the Georgian coastal defense forces.

The war started on Friday August 8th; the Black Sea Fleet was reported to arrive off the coast of Georgia on Saturday August 9th. That's pretty impressive, considering it is about 400 nautical miles from Sevastopol to Ochamchire. While the Moskva, Smetlivy, Muromets, and Aleksandrovets can make good speed and make the trip quickly, those ships sailed from Sevastopol with an assortment of support vessels that could only make 12-16 knots, at best. Simple math reveals that would make it a 25 hour trip, meaning the ships would have had to put to sea almost immediately after the fighting began. For any fleet to deploy that quickly is extraordinary readiness.

[An eyewitness report from Sevastopol] "We took up station guarding the opposed landing on the Abkhaz shore when all of a sudden four high speed targets were detected. We sent out an IFF signal and the targets didn't react. Receiving a command from the flagship, we got into formation and right at that moment the unidentified targets opened fire on the ship formation and flagship. The cruiser was damaged and a small fire broke out aboard. Then, fearing for seaworthiness, the flagship withdrew from the firing area."

Moskva and Smetlivy steamed into Novorossysk the next day. All this seems quite well coordinated.

Reactions in other countries have been swift. Ukraine has stepped up, following the Polish lead, by offering to coordinate its radar systems with those of the West. Because of earlier disagreements with Russia, President Yushchenko has now an opening to greater cooperation. Certainly everyone recognizes that the earlier hesitation to admit Georgia and Ukraine to NATO was an error. The interesting thing coming out of Ukraine this weekend, though was this comment by Prime Minister Yulya Tymoshenko -- considered both at odds with Yushchenko and favored by the Russians, to the point of accusations of Russian warchests for her presidential ambitions -- in an excellent interview by Christia Freeland:

For all their sparring, Tymoshenko and Yushchenko have been more united on foreign policy than many expected, with the prime minister moving towards the robust defense of Ukraine's national interest that the president has long espoused. Even before Russia's attack this week on Georgia, she has been measured but forthright in her attitude to the Kremlin.

Tymoshenko also understands that Ukraine's proudest accomplishment - its democratic revolution - makes it a particular target for its authoritarian neighbours. "They fear Ukraine as evidence that a post-Soviet country can quickly and effectively build a rule-of-law society and a democratic society," she says. "And this example is very, very uncomfortable for those who would like to keep everything undemocratic and untransparent."

There is little doubt to whom she is referring as "they". I hope this isn't just Yulka playing to the Western press. As long as those attitudes persist, there is some chance that western missteps in this conflict might not be fatal to their ambitions for the success of the Rose and Orange.

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Monday, October 15, 2007

The lady is back 

It looks as though Yuliya Tymoshenko will indeed be the new prime minister in Ukraine, after the final count today gives her and President Viktor Yushchenko a thin majority in the new parliament. It's a very thin coalition; LEvko reports that several attempts to bring a third coalition partner on board have failed. That failure may be due to the continued desire of Yushchenko to keep his erstwhile enemy Viktor Yanukovych closer by having Yanukovych's party have all the deputy ministerial posts. The most likely third partner in the coalition has warned that would be a deal breaker. But if Yushchenko has the ability to choose the speaker of the parliament, he may still have a card to play to solidify the majority.


Thursday, September 27, 2007

Small change or large beer 

When I worked in Ukraine it wasn't unusual for there to be problems with small change in retail transactions. Indeed, more than once I got a stick of gum for change in lieu of, say, 1000 karbovanets (would would have been $.006). I took the gum, never chewed it (I could only imagine what would be in my mouth), and never could pass it off as Krb 1000. I suspect I mostly threw them away. That's a loss.

Frank Stephenson today writes of a small currency problem in Guatemala that was due to government error. A friend of his in the country wrote:
Last year -nearing the Christmas season- the Banco de Guatemala (our central Bank) acknowledge to the embarrassment of it's authorities that it had run out of cash (due to bad planning, really). You can imagine that a large portion of Christmas sales in Guatemala are transacted in cash so the ineptitude of the central bank caused a mini-crisis specially in rural areas. The Banco de Guatemala did not acknowledge this but I know that they were purchasing Q20 bills for up to Q40 and Q50 (!!!). Somebody made a bundle out of this mess.
There was a period in Ukraine where the public phones needed coins that were worth maybe Krb 10 at a time where Krb 40,000 bought US $1. (Note: the karbovanets was Ukraine's temporary currency in the early 1990s, replaced by the hryvna in 1996.) The coins were worth far more for the metal than their exchange value, so they became scarce. But you needed them for calls, so babushkas would trade them at 15-20 times their face value. Some complained of this 'profiteering', so the government -- which owned the phone company still -- simply made public phones free. Result: babushki impoverished, and the phones soon neglected, broken and vandalized.

Tyler Cowen noted a few months ago that this phenomenon of small currency shortages is pretty common. Recommended therein is this book by Tom Sargent and Francois Velde, reviewed by Art Rolnick and Warren Weber at the Minneapolis Fed. But those stories apply mostly to token money (coins made of base metals worth much less than face value), not the paper currency Stephenson describes.

One thing I learned from gum money in Ukraine -- I used to try to buy beer on the street there (the local brand was Obolon', actually quite good in unpasteurized form if fresh), which came in both 0.33l and 0.5l bottles. I like the smaller bottles -- bring two home, one with dinner and one in the fridge for later, not too much for an evening. Alas, they are Krb 80,000 at the time and the seller didn't have change. (Gum and beer, not good.) The bigger ones? Miraculously, 100. Easier to buy those and just not finish the second ... though sometimes I did. Maybe more than sometimes...

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Thursday, August 23, 2007

Investing in uncertain Ukraine 

The Kiev I knew when I worked there eleven years ago was a rather drab place. Some newer Western shops dotted around the city, but many cranes stood still for months on end, roads were filled with chuckholes, and not much seemed to be happening. With the political turmoil of the past few years, you'd think things wouldn't have changed much.

Der Spiegel says you'd be wrong.
Gross domestic product powered ahead by an impressive 8% during the first half of 2007, and economists expect the strength to continue, boosted by a surprisingly diverse economy of services, manufacturing, and raw materials. Metals, mainly steel, account for 40% of exports, but most of the growth is coming from manufacturing and services. Production of heavy equipment rose 22% in 2006. And Ukraine's software houses saw their exports jump by 50% last year, to some $250 million.

Investors see promise in the growth. The Kiev stock exchange has more than doubled in size this year, and now boasts a market capitalization of $76 billion-a sixfold increase since late 2004. And a real estate boom has pushed up housing prices by 60% in 12 months. "We joke that as long as all these disputes are going on, [politicians] don't have time to interfere in business," says Taras Kutovyy, chief financial officer at XXI Century Investments, a leading developer that in May raised $175 million in Eurobonds to finance new apartments, hotels, and hypermarkets.
Countries that are seriously divided like Ukraine typically do not provide investment climates that are conducive to foreign firms. Is that what's going on? I don't know. A look at recent economic data indicates much of the influx of foreign trade has come from resurgent Russia rather than Europe or the USA. Construction has been up and down over the last few years. The Economist forecasts 6% growth for the foreseeable future, but whether the investment is productive for Ukraine's future or shop-building for imported goods -- which both the 'Orange' forces and the current parliamentary leaders of the Party of Regions would be happy to accept -- remains to be seen, particularly in the runup to next month's elections, where everyone promises everything to everybody.

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