Economic Crisis in Ukraine

One doesn't have to look far to see signs of the economic crisis taking hold in Ukraine.

Due to a seizing up of credit, many prominent construction projects - 70 percent by some estimates - have been halted.

On the way home this evening I strolled by one of the capital's most exclusive restaurants - just a few blocks away from the Ukrainian Parliament - and just one table was occupied.

Longtime expatriates here tell me that even the city's most popular restaurants no longer have waiting lists for tables. The neon-clad casinos and "adult clubs" that used to be magnets for Turkish men are all but deserted.

Most worrisome is that falling demand from Detroit and elsewhere has led to the temporary closure of the country's steel mills - that sector alone accounts for about 40 percent of Ukraine's foreign currency earnings!

For locals one of the biggest headaches is acquiring US dollars. Many people have loans denominated in USD - and with the greenback scarce - they have to jump through many hoops to get the cash. This week alone the US-hryna exchange rate surged from 6 to 7 hryvnas to the dollar! Many banks slap "surcharges" on customers changing currency to USD. Many Ukrainians convert a good percentage of their earnings to USD as a hedge against future swings in the exchange rate. What is more the hryna is essentially a non-convertible currency so those wishing to travel overseas need USD.

The rising expense of USD is on top of an inflation rate of about 25 percent!

Many of the capitals posh stores and car show rooms are deserted. Restaurants which were impossible to book on a Friday or Saturday evening now no longer require reservations. I wonder for how long they can maintain themselves.

Its also forecast that many of the 2-million or so Ukrainians working in Russia could start returning home soon, denying the country of foreign remittances. There are many Ukrainians in Poland, Italy, Portugal and elsewhere that may be sent home due to the global financial crisis.

The most pessimistic forecasts predict that by early 2009 Ukraine will buckle under the pressure and default on its international loans. Meanwhile political leaders are seen to be doing little to lighten the burden on ordinary people - instead bickering on petty issues.