Ukrainian Hryvnia 49% Undervalued, According to Big Mac Index

After a two-year hiatus, The Economist has finally updated its Big Mac Index.

Since 2007, Ukraine's currency, the hryvnia, has lost 50% of its value against the dollar. The change in the hryvnia's undervaluation has been less dramatic but remains staggering: from -41% to -49%.

While not scientifically precise, this rate makes for good comparison shopping: It makes Ukraine a Third World country.

It comes on the heels of just about every other index that leaves us far behind the developed world, despite Ukraine having an aerospace industry.

And as world metal prices are picking up, it comes as terrifically good news for our energy-inefficient commodity-cursed oligarch-controlled McDonbas economy.

Ours is an economy that thrives on cheap labor and cheap natural resources. The outcome? Poor living standards. A net population loss of more than 6 million people during the last 18 years.

Why reform? Why fight corruption? Why invest in energy-efficient equipment? Why diversify the economy? Why pay Ukrainian workers decent wages if they can survive on $300 a month without protesting like those German workers who make $30 an hour?

Just pay the damn Ukrainians their slave wages. Don't let them earn enough to buy homes. Let them blow up in coal mines. Let them drink. Let them stay depressed. Let them die out so we can have the land, too. After all, unless they can make us treat them better, they deserve no better treatment. Therefore, let 5 percent of the population prosper and let the rest struggle.

Meanwhile, we the oligarchs can pollute, we can exploit and we can export. We can pump billions of dollars into offshore accounts. Hell, we can even spend a few million dollars on charity! Just keep the hryvnia undervalued. Let the Ukrainian Dream remain just that — a dream!

Sources:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=14036918

McDonbas: Ukrainian Hryvnia 41 Percent Undervalued

This year’s edition of The Economist’s Big Mac Index has a lot to tell about Ukraine.

First published in 1986, the Index relies on the price the U.S. Big Mac as the benchmark for tracking the local prices of the world’s best known fast food item. By simple math, it calculates the purchasing power parity (PPP) for each country and compares it against each country’s official exchange rate.

The resultant burgernomics serves as a country-by-country gauge of consumer prowess and as a guide to who’s who in the global economy. Agreed, the underlying methodology may have its limitations, just as adjustments for price and currency fluctuations have to be made. (A real-time picture requires real-time inputs.)

Still, Ukrainian economists have long considered the hryvnia’s undervaluation a fact of life. Ukraine’s rating of -47 (or -41 if we use more recent data) means that 2.77 hryvnia per U.S. dollar would be more accurate than today’s official exchange rate of 5.05.

As the main beneficiary of this hefty discount, the ruling Party of Regions should partner with McDonald’s in integrating these mouthwatering financials into its parliamentary campaign menu. After all, PRU members top the ranks of those happy Ukrainians who cash in on the robust metal exports powered by a weak hryvnia.

And as cheap laborers, Ukrainians deserve full disclosure of where their Big Mac leaves them. It leaves them in a world of funhouse mirrors: with a McDonbas economy that makes it so damn hard for them to say “I’m loving it.” The Big Mac reality is the missing ingredient in ads like this:

Тільки Віктор Янукович та Партія Регіонів довели, що вони мають досвід ефективно керувати урядом, що досягає результатів! Стабільність, ефективність, продуктивність - ось справжні лідерські якості, яких Україна потребує, щоб покласти край хаосу та знову стати на шлях розвитку!

Only Viktor Yanukovych and the Party of Regions have a proven record of experience in efficient governance that delivers results! Stability, efficiency, productivity! These are the true leadership qualities that Ukraine needs in order to put a stop to the chaos and get back on the development track!

We could argue that the development track in the Regionalist vocabulary refers to the developing world, as can be observed from Ukraine’s position on the Index. Our neighbors include:

Thailand, -45
Sri Lanka, -46
Philippines, -46

Well, that’s hardly surprising since consultants to Yanukovych have a proven record of experience in catering to Philippine leaders.

Sources:

http://www.pravda.com.ua/news/2007/7/9/61285.htm
http://delo.ua/news/economic/theme/info-41325.html http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005