Inflation and Democracy: Yanukovych’s Achilles Heel

(Media Credit/UNIAN)

By Danylo Spolsky, Kyiv-based Analyst

Imagine the following:

The date is June 2011, one year on from the end of the global economic implosion. The so-called “Jasmine Revolution” of early 2011 has spread – other Middle Eastern and North African (MENA) countries are attempting to match Tunisia, Egypt, and even Libya in overthrowing autocratic regimes and ushering in democracy. Pushed skywards by supply interruptions across the Middle East, crude oil prices at more than $150 per barrel are threatening to undo the post-crisis strides made by the Western world and re-ignite a recession.

Meanwhile, driven by the continued US and EU economic stimulus policies of extremely low interest rates and asset purchases (“quantitative easing”), months of record-high inflation in China have sparked protests and reactionary repression by the state. To boot, grain prices are skyrocketing on the back of worries over a second consecutive year of poor grain harvests, serving to further stoke food supply fears.

Where would a global situation like that leave Ukraine, a country in which two of the hottest issues are the administration’s democratic record and inflation?

First, there’s inflation. In response to rising food prices, the government has actively introduced regulatory measures to contain the growth. Export quotas on grain were introduced in October, designed to lock grain volumes inside the country and weigh down prices. Domestic prices have flat-lined since then in contrast to the continued global spike. The government subsequently asked the largest producers of key food staples (sugar, sunflower oil, and dairy, among others) to hold prices steady, though the success of that initiative remains to be seen. Although not necessarily a direct result of the measures, 2010 inflation came in at its lowest reading since 2003 and slowed further in January.  That said, the government will have a tough time this year – prompted by the IMF, Ukraine has pledged to hike household electricity tariffs twice this year, both times by 50 percent. Of course, foreign monetary policy has to be taken into consideration – domestic policy will only do so much if inflation in Europe and Asia continues to rise.

As for democracy, although the situation is clearly different, someone at the presidential administration must be keeping a wary eye on protests in the Middle East and North Africa. And although Ukraine can be seen as a model democracy when compared to many regimes in the MENA region (especially Libya), there are worrying signs that have observers claiming Ukraine could backslide to a Belarusian standard of authoritarianism. This includes the arrests of opposition politicians, electoral infractions and flat-out falsification, increasing media censorship and attacks on journalists, the swift crumbling of the independent judiciary, and others. For all the blotches on the government’s democratic record, there are has so far been little backlash – voter apathy is still significant, and people in this part of the world don’t seem to feel as entitled to democracy as does the more developed world; they simply take what they can get.

On balance, Ukraine would seem to be at little risk of contagion. But the dangers are surely lurking in the shadows. Inflation, both domestically driven and imported, could flare up on short notice. The potential stumbling blocks in terms of democracy are even more numerous and arguably more treacherous. If the two happen to coincide, it could be a long, hot summer for the Yanukovych administration.

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