Two currency crises, three shocks and a war, on one page
Two currency crises, three external shocks and a war. What survived all of them is a small number of institutions, and that is the story.
Compressed into a page, the Ukrainian macroeconomic record of the last twenty years is a sequence of shocks separated by short recoveries, with one line of institutional improvement running underneath.
The shocks
2008: a global financial crisis hitting an economy dependent on steel exports and foreign currency borrowing, producing a devaluation and a banking crisis.
2014 to 2015: loss of territory, loss of industrial capacity, collapse of a major export market, a second devaluation and a second banking crisis, deeper than the first.
2020: a pandemic, which by the standards of the others was manageable.
2022: the largest shock of all, with output falling by roughly a third in a single year.
What was rebuilt in between
After 2015, in a compressed period: central bank independence and inflation targeting, a floating exchange rate, a cleaned banking system with a deposit guarantee that pays, cost-reflective energy pricing, open procurement and open registers, and a domestic bond market.
None of that is glamorous and all of it is load-bearing.
What the last shock demonstrated
That the institutions held. The exchange rate moved without a collapse. Banks stayed open and depositors did not run. The budget was financed without printing money. Statistics continued to be published.
Every one of those is a direct return on the reforms of the previous decade, and none would have been possible in 2013.
The lesson worth extracting
Institutional reform is invisible until it is tested, and it is tested at the worst possible moment. That is precisely the argument for doing it when there is no crisis, which is exactly when it is hardest to justify.
I read this page as a summary of twenty years, and what I see is that money lost in a shock is replaced more easily than an institution. The capital we lost in 2008 came back in three years; the confidence took ten. The small number of institutions that survived will determine how quickly this country recovers from the next shock.
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