Ukraine is not the only crisis to emerge from the former Soviet Union. It’s the most immediate and most immediately dangerous. But beyond the stunning images of boiling demonstrations in Crimea and eastern Ukraine, there is a less vivid but as potentially destabilizing danger growing greater by the week. It is the threat of a Slav crash.
The three Slav republics of the former Soviet Union are Russia, with more than 140 million people, Ukraine, with around 47 million, and Belarus, with nearly 10 million. These made up some three quarters of the USSR’s population and were (apart from the tiny Baltic states) the richest regions.
But now they are faltering; Ukraine most obviously. Sergei Voloboev, head of emerging markets at Credit Suisse, said in London this week that the country has a current account deficit of nearly 10 percent and a fiscal deficit of 7.5 percent.
These are very high, but need not be deadly if the economy is healthy and reform is under way. But Ukraine’s economy is sick, and reform will be difficult. Alone among the former Soviet republics, Ukraine has made no post-communist headway. It’s as poor now as it was in 1989.
In part, says Alex Pivovarsky of the European Bank of Reconstruction and Development, this puzzle is explained by the huge concentration of heavy industry in Ukraine that was built up and maintained by investment from Moscow. When this investment stopped, Ukraine had to either modernize (which meant closures) or keep the industry going on its own budget. It chose the latter, ruinously.