As a mission of International Monetary Fund prepares to descend on Ukraine on Oct. 17, the nation seems very far from a new program with the fund. The new mission will stay until Oct. 29 and will assess Ukraine's macroeconomic performance, but recent comments from the fund's director for Europe indicate that there is not much optimism about potential findings.
“ I think we know the interest
of the Ukrainian authorities to engage in program discussions with
the fund. We have had discussions on and
off, we know of their interest. But also, Ukraine faces very
difficult challenges, particularly on the structural fronts, and for
there to be a realistic chance of a fund program, it is imperative
for us to have openness by the government on the reform agenda,”
Reza Moghadem, IMF’s director for Europe, said
on Oct. 11, according to transcript the comments available on the IMF
website.
“So, I hope that openness would be
there. It has not been there so far,” said
Moghadem.
Ukraine has not had a
program with the IMF since 2010, when a $15.2 billion loan program
fell off track after only 3.4 billion of this money was disbursed.
Ukraine was tapping foreign bond markets to cover the budget gap. But
last month Moody’s investor service downgraded Ukraine’s government
bond rating to Caa1 from B3, with negative expectations, which turned
investors off the country’s sovereign debt.
Jerome Vacher, the IMF resident
representative in Ukraine, in his recent statement
announcing the new visit from Washington, indicated that Ukraine can
hope for nothing in the short terms, since the Washington delegation
is coming to discuss plans for the mid- to long-term.
Moghadem said the mission
is happy to resume the dialogue, which “has been dormant for some
time.”
“We are happy to resume that
dialogue, but it would only succeed if we can see a degree of
seriousness in addressing some of the challenges, some of the reforms
needed in that country,” he said.
The challenges include four
long-standing issues Ukraine has been unwilling to address for years. These are cutting down budget spending, which has been causing double deficits,
making the hryvnia more flexible, further banking sector reform, and hiking
gas tariffs for the population. The government has been balking at
this point particularly stubbornly because President Viktor
Yanukovych believes it would hurt his chances for re-election in
2015 because the price hike would affect the lower income groups of
the population.
The fund, however, has
insisted for years that Ukraine needs to move from the current scheme
of across-the board subsidies where the bulk of the money goes to pay
for bigger (and richer) consumers, to targeted subsidies that would
specifically benefit the lower income groups.
Timothy Ash, head of emerging
markets research in London-based Standard
Bank, said that IMF’s recent comments make a potential deal look
unlikely, despite Ukraine’s hope that its geopolitical important will
make the fund soften its stance.
“Many of its key shareholders will
now be loathed to go soft on Ukraine. They will hence not be rushing
to throw a new IMF program over Ukraine this time around,
notwithstanding what Kyiv thinks about its geopolitical importance –
which I tend to think is continuously overstated,” Ash said in his
Oct. 17 notes to investors.
Kyiv Post deputy chief editor Katya Gorchinskaya can be reached at gorchinskaya@kyivpost.com.
