Political Risks for Ukraine and Eastern Europe
Friday, January 16th, 2009Although the gas crisis appears to be waning, there are other signals that political risks in Ukraine-as well as Russia and Eastern Europe-are increasing. With declining currencies, economic uncertainity, and governments that are ill prepared to deal with possible political instability, there could be social unrest in the not too distant future.
How all this plays out will be determined largely by the way governments are pro-active in addressing some of the underlying issues, as well as how they cope with social tensions. Some nations-including Ukraine-might be more inclined towards democratic measures that could allow crisis to be tempered. Others-like Russia-could impose more repressive measures that just might exacerbate tensions, as well as delay any reforms and changes that would help transition through this period.
From www.rgemonitor.com:
Political Risk On The Rise Across Eastern Europe Amid The Global Economic Crisis
- Violent protests in Latvia and Bulgaria marked the latest eruption of anger in economically troubled nations in Europe, following riots in Greece and protests in Russia and Ukraine. Eastern European (EE) countries are at particular risk as the global financial crisis threatens to erase economic gains achieved in the past decade, raising pressure on governments and undermining democratic transition (For the economic background, see related spotlight issues: Which Eastern European Economies Are Most Vulnerable To Global Turmoil? Why? and 2009 Outlook: How Vulnerable Are The CIS Economies To The Global Slowdown?)Political Risk On The Rise Across Europe
- Latvia: On Jan 14, hundreds of demonstrators clashed with police after an anti-government protest organized by opposition parties and trade unions demanding snap elections. Discontent has been brewing since the country slid into recession and the government had to seek a 7.5b euro ($10b) rescue from the IMF and EU
- Bulgaria: An anti-government demonstration in Sofia turned into a riot on Jan 14 as anger over corruption, crime and the slowing economy spilled over. Public anger also brewed over a prolonged cut in Russian gas supplies that has left thousands of homes without central heating
- Ukraine: Thousands of trade unionists staged protests in Dec 2008 against cuts in jobs and benefits in a country that has received $16.5b rescue package from the IMF. The persistent political crisisis enhancing uncertainty at the time of the gas row with Russia and the rapidly deteriorating economy that is likely to enter recession in 2009
- Russia: Scores of demonstrations were held across the country in Dec 2008 to protest a planned tax hike on imported used cars and government’s handling of the economic crisis, prompting fears of a wider social unrest as the unemployment rises and the economy deteriorates
- Greece: The government is struggling to hold on to power following Dec 2008 violent protests sparked by the police killing of a teenager but fueled by deep popular anger over economic hardshipand the government’s belt-tightening measures
- Georgia: President Saakashvili reshuffled the government in Dec 2008 (for a fourth time in a year) as war costs, coupled with the global financial crisis cut the country’s growth and boosted opposition
- The head of the IMF recently warned that the global economic crisis may spread social unrest unless governments expand and implement promised stimulus packages. Yet, Danske noted that the Keynesian option might not be possible in most EE countries, as many are struggling with huge funding needs due to large C/A deficits and, in some, large public finance deficits
- Moreover, IMF bailout packages for Ukraine, Latvia, Iceland, Hungary are conditional upon radical cuts in public spending. In Greece, riots were fueled by unpopular austerity measures including newly introduced taxes and plans to reduce spending on the pension system
- Financial crisis impedes delivering populist promises made ahead of elections, weakening governments: Pensions hike in Serbia is delayed until 2010 and Romanian govt blocked the opposition-sponsored teacher’s pay increase bill
- In the EE countries, the current financial crisis could amplify the existing trend of political disappointment and questioning of the strength of the region’s democratic transition. According to EIU, 19 out of the 28 EE countries recorded a decline in their democracy scores between 2006 and 2008
- Political and economic freedom are often closely associated and a rise in economic nationalism (as already seen in Russia and Kazakhstan) may bring less democracy (EIU)
- The crisis could mark the breakdown of the social contract in Russia (based on rising real incomes and selective repression) and make the country more authoritarian - short of cash, government will have limited space to address the growing discontent and may opt for more repressive policies instead (Economist)
- During the third wave of democratization that swept Eastern Europe in 1990s, the Western countries offered the economic and political model to follow. Now that the crisis has undermined the credibility of the free-market capitalism, the Chinese model of authoritarian capitalism could become more attractive (WSJ)
Fiscal Tightening: A Recipe For Popular Discontent?
Democracy Backlash?
