Prediction: Ukraine's love affair with the West will be short-lived
Source Robert Naiman
Date 14/02/28/11:14

I'M INTERESTED TO see if the IMF-EU can restrain themselves from fully imposing the usual dogma, on the grounds that the competition with Russia is more important, or will it be business as usual.

For example, the question of fuel subsidies is often mentioned. From a standard economic point of view, it's a slam dunk that this is not a desirable policy. People would be better off if you just gave them cash instead of the subsidy, and they would consume less energy, which would be good for the environment and for your balance of payments and your sovereignty if you're an energy importer.

But there's clearly a wrong way to remove fuel subsidies, which is that everyone wakes up one day and fuel subsidies are gone with no compensation from the government, making poor people a lot worse off with a big shock.

Iran carefully implemented a plan to remove fuel subsidies gradually, starting at the margin: there was a limit imposed to what you could buy at the subsidized price, after that you had to pay the market price. This meant that the worst incentives for over-consumption were removed, while still protecting poor people from the price rise up to a certain amount of consumption. This was coupled with a phase-in of cash transfers to the poor. There was no big public backlash.

Could we see something like that in Ukraine?

[View the list]

InternetBoard v1.0
Copyright (c) 1998, Joongpil Cho