In a country where inflation is running higher than 16%, the World Bank’s Doing Business report ranks the tax system last, and corruption is endemic – there are a plethora of potential government actions to be taken. After months of government inaction due to the political crisis, the Ukrainian Rada (parliament) finally met just before the New Year. Although they did manage to pass a budget for 2008 they failed to agree to much more. Unfortunately, a full 10% of the new budget is dedicated to a repayment plan for personal Soviet era bank accounts, fulfilling a campaign promise, but returning to the populism that brought about the downfall of Yulia Tymoshenko’s previous government just two years ago.
I have a great deal of sympathy for those that lost all of their savings with the break up of the Soviet Union, but by trying to repay those that lost their savings in the past the Ukrainian government is bankrupting its future. Many economists and policy analysts believe that these payments will raise inflation rates even further and cause the Ukrainian government to take on a burdensome amount of debt. These debts will be forced upon the next generation of Ukrainian citizens and inhibit future economic growth.