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Ukraine crisis leaves shoppers out of pocket

People queue for eggs bought to be painted as Orthodox Easter approches from a shop improvised in an old truck in Tiraspol, the main city of Transdniestr separatist republic of Moldova April 16, 2014. (AFP PHOTO DANIEL MIHAILESCU)

KIEV: “Everything has gone up 50 percent,” grumbles Kiev fishmonger Albert as he lays out his wares in the local market, another victim of Ukraine’s economic crisis sparked by months of political turmoil.

Ukraine’s economy, heavily dependent on Russia, was already wobbling even before the street protests that erupted in November, forcing a change of government in February and eventually Moscow’s annexation of Crimea.

But the economic situation has since deteriorated rapidly, as Russia withdrew promised financial backing and Russian state gas giant Gazprom demanded immediate settlement of about $3.5 billion in unpaid bills.

The months of unrest are beginning to take their toll on ordinary Ukrainian shoppers as the currency, the hryvnia, plunges and inflation soars.

Albert’s salmon has gone up 100 percent, he said, resulting in “customers only taking half of what they used to.”

He blames the dramatic collapse in the currency, which has lost more than a third of its value since the beginning of the year despite emergency central bank action to shore it up with a drastic interest rate hike.

It’s not just food that has shot up in price. Petrol prices have doubled in two months, and this week, Kiev’s main bread producer, KyivKhlib, announced it had no choice but to raise its prices by 10 percent.

In a central Kiev cosmetics shop, the sales assistant can barely keep up with the changing prices, preparing new tags for a 50-percent increase.

Local butcher Valeriy Liachenko complained that his usually bustling trade this time of year had dried up.

“The economy is very weak. People have no money. Two or three years ago, people were buying more at Christmas and at Easter,” the 52-year-old said.

One of the main reasons is that people are having to spend more to get around, he said. “It used to cost me 100 hryvnias [$9] in petrol to get to the market, now it costs me 150.”

Clutching a plastic bag full of mushrooms, housewife Oxana Povnitsa showed AFP rows of empty aisles in the local market.

“People are trying to find cheaper options and are going to markets further out of town,” she said.

Ukraine was already in recession at the end of 2013 and authorities have warned that the economy could shrink by as much as 3 percent this year due to the political unrest.

Concerned that inflation was running at more than 15 percent, the central bank last week announced a hefty hike in interest rates from 6.5 percent to 9.5 percent in a desperate bid to bolster consumer confidence and the currency.

The hike had some immediate impact, with the hryvnia clawing back some ground against the dollar on the foreign exchange markets, but much of the effect was short-lived.

The crisis is also hitting foreign investment, and Russia, the main customer for Ukraine’s industrial machines, is reducing its spending in its neighbor as much as possible.

Industrial production, a vital component of the country’s economy, plunged by 5 percent in the first quarter compared to the same period a year ago.

Panicked consumers rushed to withdraw their hryvnias to convert into hard currency, forcing local money further down in a vicious circle.

The West has rushed to help, with the International Monetary Fund last month approving the broad outlines of a $14 billion-$18 billion package that could be disbursed over two years should Ukraine pursue painful and unpopular reforms.

That package is part of a $27 billion rescue being mounted by the World Bank and Western powers.

“The next six months will be painful for ordinary people because of higher inflation caused by a weaker currency,” said Olena Bilan, an analyst at the Kiev-based Dragon Capital.

“It is tough, but it’s not desperate,” she said.

“Assuming there is no full-out conflict with our neighbor, I think the economy will start to recover in the second half of the year.

“It will not be as difficult as after the collapse of the Soviet Union ... but after several years of stability, people will feel worse.”

Like many Ukrainians, adaptable fishmonger Albert is used to seismic changes in the economy and has already worked as a chef, car mechanic and shopkeeper since the collapse of the USSR.

“We survived the 1990s. The country is not scared of anything. Today, I’m selling fish, tomorrow, maybe I’ll sell something else.”

 
A version of this article appeared in the print edition of The Daily Star on April 26, 2014, on page 8.

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Summary

"Everything has gone up 50 percent," grumbles Kiev fishmonger Albert as he lays out his wares in the local market, another victim of Ukraine's economic crisis sparked by months of political turmoil.

Petrol prices have doubled in two months, and this week, Kiev's main bread producer, KyivKhlib, announced it had no choice but to raise its prices by 10 percent.

Ukraine was already in recession at the end of 2013 and authorities have warned that the economy could shrink by as much as 3 percent this year due to the political unrest.

Concerned that inflation was running at more than 15 percent, the central bank last week announced a hefty hike in interest rates from 6.5 percent to 9.5 percent in a desperate bid to bolster consumer confidence and the currency.

Industrial production, a vital component of the country's economy, plunged by 5 percent in the first quarter compared to the same period a year ago.


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