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UKRAINE'S MONEY LOCK-DOWN

By Eric M. Jackson, 7 December 2004

 Americans may take their ability to load up on cash from an ATM and initiate wire transfers for granted, but this simple economic right is a crucial underpinning of their liberty. The unfettered flow of money is the bane of despots and corrupt governments the world over. When money is allowed to exchange hands unimpeded, it decentralizes decision-making and empowers a society's citizens by giving them a store of value and a medium of exchange that they can employ so as to live their lives as they choose. This weakens the state's central authority by affording individuals direct control over their own destinies.

Yet if the free flow of money is a critical component of Western liberty, it should come as no surprise that earlier this week Ukraine's retrograde government took steps to curtail its citizens' access to their savings.

These newly imposed limits on bank account withdrawals and currency exchange -- levied in the name of exchange rate stability -- came as the populace began to rebel against the disputed results of their November 21 presidential election.

Going into the election, Viktor Yushchenko -- a reformer who seeks to bring Ukraine into the West -- held a large lead, a margin exit polls confirmed.

But his Russophile opponent, Viktor Yanukovych, ended up garnering 870,000 more votes on election day.

Was Yanukovych a Ukrainian comeback kid?   Not likely.  As evidence of

rampant election fraud mounted, regions in the Yanukovych-leaning eastern part of the country barred international poll watchers, and many precincts notched voter turnout in excess of 100 percent, with Yanukovych's share over 90 percent therein. And though the United States and European Union quickly condemned this transparent subversion of democracy, Russia's President Vladimir Putin -- the man standing to gain the most from the quasi-coup -- rushed to hail Yanukovych as the winner.

The stakes for Putin are clear. Yushchenko has pledged to halt Ukraine's quickening slide back into Russia's sphere of influence, a path which has made neighboring (and dictatorial) Belarus a virtual Russian colony. What's more, Yushchenko's message has resonated with the majority of his countrymen; and in spite of a hostile state-run media and two separate assassination attempts by Yanukovych's men, the plucky Yushchenko -- and Ukraine with him -- has defied the old guard's attempts to cow him while they return Ukraine to the Russian imperial fold.

But now that protesting pro-democracy Ukrainians rule the streets of Kiev,

how has the government responded?   In the manner of tyrants everywhere:  it has clamped down on their finances.

Earlier this week, Agence France Presse (AFP) reported that Ukraine's central bank had initiated a lockdown on citizens' financial freedom, capping bank account withdrawals at just 1,500 Hryvna (about $285 USD) per day.  At the same time, it limited currency exchanges to the equivalent of $1,000 USD. Private businesses were hit especially hard, with similarly restrictive withdrawal and exchange limits.

The official claim that this move was necessary to prop up the Hryvna rings hollow. Why lock down citizens' savings when their miniscule wealth is a pittance beside the daily activity on international currency markets?  Open market intervention -- like the Bank of Japan does routinely to prevent the Yen's over-appreciation against the dollar -- would be far more effective than trampling citizens' rights. And with its central bank holding over

$10.5 billion in hard currency, Ukraine's leaders could certainly execute this strategy if it wished.

In fact, the central bank is propping up an illegitimate government, squeezing the people who might stand up for their rights.  The currency "crisis" the government is pretending to solve on the backs of its people is a red herring:  the Hryvna would face no selling pressure but for Yanukovych's stolen election, the resulting body blow to democracy, and the likely consequent tilt away from free markets and the West.  Correct the underlying problem (a stolen election) and the exchange rate issue goes away.  But while the thieves' need to drive the protestors off the streets and back to work remains, this obvious economic truth can neither be admitted nor addressed.

Like countless government-engineered currency crises before it, this Ukrainian debacle clearly illustrates the need for the spread of global markets and advances in technology sufficient to render statist economic chicanery obsolete. And without a doubt, there are entrepreneurs devising ways to help capital elude the restrictions of heavy-handed regimes at this very moment. As I detail in my book, The PayPal Wars, the online payment service PayPal was created with this very goal in mind. PayPal's founders envisioned their company empowering people from around the world with the ability to move money with the click of a mouse. Unfortunately, an onslaught by regulators, lawyers and lobbyists forced them to sell their company to the auction giant eBay, surely handing them a great business triumph, but prematurely ending their dreams of revolutionizing global currency markets.

Yet oppressive regimes should still beware.  It's only a matter of time until some similarly bold, forward-thinking entrepreneurs devise a way to help citizens move their money out of despotic control. Until then, the West needs to pressure corrupt governments like Ukraine, not only to hold fair elections, but also to uphold the essential principles of economic ­ which is to say, human -- liberty.

Copyright: Eric M. Jackson, 7 December 2004.

-- Eric M. Jackson is the president of World Ahead Publishing and serves on Vanguard PAC's Board of Advisors. His book, THE PAYPAL WARS, can be purchased at bookstores nationwide and online at Amazon.com:

<http://www.amazon.com/exec/obidos/ASIN/0974670103/vanguardoftherev/>

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Rod D. Martin is Founder and Chairman of Vanguard PAC <http://www.VanguardPAC.org>. A former policy director to Arkansas Gov. Mike Huckabee and Special Counsel to PayPal.com Founder Peter Thiel, he is a member of the Board of Governors of the Council for National Policy, a Vice President of the National Federation of Republican Assemblies (NFRA), and editor and co-author of "Thank You President Bush".

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