MOSCOW. (Leonid Vardomsky, member of the RIA Novosti expert council) - While Kiev is busy creating a free-trade zone with Europe, political tensions in Ukraine persist. How might this situation affect the prospects of Russian-Ukrainian economic cooperation?
The Russian Academy of Sciences' Institute of Economics has convened economists from both countries to answer this question and discuss the current status of both economies.
According to the Ukrainian experts, the dynamic economic growth registered in their country since 2000 is due mainly to growing consumer demand. The latter, in turn, is fuelled by export revenues and remittances from labor migrants. To ensure steady growth, Ukraine will have to abandon the consumer model in favor of an innovation-based one, according to Dr. Valery Geyets.
Cooperation with Russia in the sphere of science and technology is an important part of the latter model because Russia has a steady demand for Ukraine's mechanical engineering products. As of now, the share of machinery and equipment in Ukraine's exports to Russia is many times higher than in its exports to the EU nations. Russia's economic growth, in turn, assures further stable demand for Ukrainian metals and machinery.
Russia's gas price hikes have not seriously affected Ukraine's economy, except, perhaps, for the chemical sector, which lost around 50% of its profits.
Ukraine is seeking to create a free-trade zone with the European Union after joining the World Trade Organization (WTO). It will quite likely join the WTO earlier than Russia, and on different terms. The EU sees Ukraine as a promising producer of raw plant materials for biofuels, as Europe's demand for the latter is expected to grow many-fold in the next decade.
The Ukrainian experts also noted that to solve its snowballing social and economic problems, that country would need an annual GDP growth of over 6%. However, the current political instability is hampering Ukraine's economic development. It is only natural that the unrealistic promises of the conflicting sides - higher wages and social benefits and lower public utilities costs, along with the covert fight for property and control of budget funds - are damaging the Ukrainian economy. In the absence of a solid middle class, the Ukrainian government defends the interests of various business elites, whose conflicts destabilize the country.
In the context of growing political tensions, coupled with Ukraine's stubborn efforts to integrate with Europe, the prospects of Russian-Ukrainian cooperation look vague. Still, the two nations have preserved their great potential for trade and economic cooperation, so vital for Ukraine's economic growth.
The Russian and Ukrainian experts agreed that the two countries should not focus on the establishment of a free-trade zone and a customs union. It is far more important now to pool their efforts to implement mutually beneficial projects in industry, transport, research, education, and so on.
Leonid Vardomsky is head of the Center for CIS and Baltic Studies at the Institute of Economics, Russian Academy of Sciences.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
