Ukraine: desperate actions taken to guarantee IMF loan

11 March, 2009, 20:13

The government of Ukraine has announced it agrees with the requirements set down by the International Monetary Fund (IMF) for providing increased loans.

Ukrainian authorities are expected to agree to all requirements asked of it in exchange for receiving a second IMF payment totaling $US 2 billion.

“Big progress has been made. In my opinion, Ukraine has completed revising the steps to be taken in order to establish dialogue and resume the programme with the International Monetary Fund,” noted Victor Yushchenko, President of Ukraine. His statement came on Wednesday after meeting with Prime Minister Yulia Timoshenko, National Bank Chairman Vladimir Stelmakh, Head of Parliament Vladimir Litvin and representative of the opposition.

In particular, questions on rebalancing the state budget, the pension fund and the budget of Naftogaz were discussed. The bill concerning rebalancing the pension fund, which was also required by the IMF, will be considered by the parliament next week.

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IMF and Ukraine

By November, 2008 the IMF has approved allocating to Ukraine a stabilizing credit for a total sum of $US 16,4 billion.

Then Kiev had received the first installment for the sum of $US 4,5 billion.

However, the delivery of the second payment was stalled after the Ukrainian government failed to adopt a budget in accordance with IMF requirements.

The official letter with “the consolidated position of the Ukrainian party” will be directed to the IMF on Thursday, according to Viktor Yushchenko.

Since autumn 2008 Ukraine has actively engaged in consultations with the West about granting financial assistance to the state. This help is essential for the country in the midst of a crisis, which has caused stagnation of the national economy, falling of industrial production rates, a decrease in the standard of living and a significant growth in unemployment.

The government’s steps

Vice-Premier Grigory Nemyrya said Wednesday that the state budget has been rewritten based upon the requirements of the IMF.

“[On March 11] the government made a number of decisions regarding the maintenance of the independent functioning of the National Bank of Ukraine”, Nemyrya said.

The IMF “categorically does not accept” the provisions of the 2009 budget that require the National Bank to buy state bonds and allows the government to interfere in the procedure for refinancing banks.

AFP Photo / Sergei Supinsky

The government has agreed to cancel provisions about obligatory repayment of the state bonds by the National Bank of Ukraine, which will make it more independent. “Changes have been made to the decisions of the National Bank’s cabinet concerning the order of refinancing Ukrainian banks during the financial and economic crisis … [and] participation of the state in banks’ capitalization”.

Max Alier, the permanent representative of the IMF in Ukraine who attended the government session, said the consultations on the second credit installment and the changes in the government’s decisions “brought essential progress to the negotiations”.

Opposition point of view

The opposition has always been opposed to the changes demanded by the IMF. The leader of opposition, Viktor Yanukovich, said that seeking funds from the IMF meant “the authority is ready to guarantee the worsening life for the citizens of Ukraine”.

In particular, the opposition is completely against increasing the retirement age of Ukrainians by six months each year and simplifying the tax system for small and medium business, as demanded by the IMF in exchange for further loans.

“The opposition demands an immediate reconsideration of the state budget of Ukraine and preserving social protections for every person who suffers from the crisis”, Yanukovich said.