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Global downturn hammers Ukraine's economy

Ukrainians are hurting as gas prices soar, unemployment rises, and currency value plummets.

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"This crisis has touched almost everyone already," says Yury Danilenko, a worker in Vetropack's mold shop. Though he's happy he's still working, he says his wife recently lost her job as a service worker, the family's bank account is frozen, and many neighbors are unemployed. "I'm really worried about the future. We haven't seen anything like this before," he says.

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Officially, unemployment is around 5 percent. But that greatly understates the problem, says Volodymyr Gryshchenko, head of the Federation of Employers, whose members employ about a third of the country's workforce. "Employers are trying to find ways to avoid firing workers outright, and so they're cutting hours or sending workers on unpaid leave," which doesn't show on official unemployment rolls, he says.

Ukraine's chemical industry, which employs hundreds of thousands, continues working even though orders have fallen drastically because, he says, "if you shut down a chemical plant it is extremely difficult and expensive to restart it." But if gas prices remain high, he adds, "our chemical enterprises will no longer be competitive."

In December, amid the collapse of some of the country's leading banks, Ukraine's central bank ordered all savings deposits frozen in a bid to prevent a panic. That move may have been successful, but many citizens watching the hryvna dive and unable to get at their money are crying foul.

Those hit the hardest are the country's fledgling middle class, whose political ideals tend to be liberal and who were quickest to adopt modern economic habits, such as trusting banks and taking out consumer loans, says Viktor Nebozhenko, director of Ukrainian Barometer, an independent Kiev think tank.

He adds that he sometimes wishes he'd stuck to the Soviet-era habit of keeping his cash in a mattress. "Middle-class disillusionment is very dangerous, because these are the people most capable of self-organization," he says. "Everyone is suffering from this banking crisis, and some are getting very angry."

"As long as the factory is working, I can keep up with my loan payments for house and car," says Yelena Brexler, who works near a mechanized glass blower that spins out hundreds of red-hot bottles per hour at Vetropack. "But banks are raising loan costs, things are getting harder, and we're all very concerned."

Some experts warn that Ukraine, which has already received $16.5 billion in emergency funding from the International Monetary Fund, could default on its national debt, which could have catastrophic political consequences.

"We are in a pre-default situation, and it looks like Ukraine has already lost its chances to reform its economy and industry," says Vadim Karasyov, director of the independent Global Strategies Institute in Kiev. "The worst thing is, people are starting to feel disillusionment in the idea of democracy itself. The demand for a strong hand, to fix this mess, is growing."