We lost time, opportunities for modernization

Let me break it down. After the Soviet Union collapsed, Ukraine inherited vast assets. The defining trait of these assets was that they were built with massive investments, funded by an entirely different state entity. Once we gained independence, Ukraine didn’t need to pour more money into them.

But here's the thing: economists know that all assets — factories, equipment, energy systems, railways, and public infrastructure — wear out over time. In the private sector, depreciation is factored into product costs so that the funds can later be used for upkeep and restoration.

Now, let's get to the crux of it. Due to reckless and corrupt privatization, entrepreneurs got these assets for next to nothing. They then milked these assets for profit. And even if some depreciation was accounted for, it was minimal. In capital-intensive industries, where depreciation could amount to significant sums, this skimping boosted their profits even further.

Essentially, the funds meant for Ukraine's modernization and structural overhaul were siphoned out of the economy — almost permanently.

And now, we find ourselves in a situation where the country desperately needs massive investments, but there are no financing sources left. The original sources that could have funded this modernization are either exhausted or destroyed.

Even the banking system, which should have been able to finance these investments, got tangled up in these schemes. This led to an enormous amount of non-performing loans. And let me remind you, Ukraine holds the world record for the highest percentage of these bad loans. Today, this same banking system, with the culprits still unidentified, barely finances any capital investments.

So, here we are, left with nothing. Worse still, under the current circumstances, there's no way out.

Source

About the author: Pavlo Vernivskyi, economist.

The editors do not always share the opinions expressed by the blog authors.