When President Leonid Kuchma campaigned under the slogan ‘Everything is going to be alright’ during the recent election race, he promised to quickly win back foreign lenders’ confidence in Ukraine and gain the funds needed to cope with next year’s mounting debt burden.
Facing more than $3 billion in foreign debt payments next year, Ukraine, with its hard currency reserves at slightly more than $1 billion, is counting on some $1.3 billion in International Monetary Fund and World Bank aid in 2000.
But in the latest talks with the two lending institutions, the government is finding it tougher to win over the lenders.
The IMF and World Bank teams arrived in Kyiv last week and – without promising any immediate loans – said that any further disbursements would be contingent on swift and radical reforms – something the government has consistently failed to produce over the years.
‘The investment climate in Ukraine is one of the worst in Eastern Europe,’ said World Bank Acting Country Director for Ukraine and Belarus Lily Chu, who led the bank’s delegation to Kyiv. The IMF’s stance was just as rigid.
‘Ukraine’s economy is over-regulated, over-licensed and over-inspected,’ said John Oldling-Smee, who heads the IMF’s Second European Department.
Whether or not Ukraine receives its next scheduled IMF loan tranche ‘will depend on government’s desire to implement all the planned reforms,’ Olding-Smee said.
He said the IMF wanted Ukraine to start administrative reform so as to cut the size of the state bureaucracy and reduce interference in the economy, approve a realistic 2000 budget, streamline the tax system, speed up privatization and reduce subsidies to loss-making companies.
The IMF suspended its $2.6 billion aid program to Ukraine in September. The fund’s latest mission, which arrived in Kyiv Dec. 1 for a two-week visit, was to determine what progress – if any – the government had made.
But Ukrainian officials appeared to have little to boast of.
Reforms were virtually stalled in the previous months by the presidential race. In addition, the government failed to meet its budget deficit target and other economic indicators monitored by the IMF after it printed large volumes of cash to pay off its mounting social security arrears ahead of the vote.
‘They no longer believe in us, nor do they trust our decisions. They only trust what has been done and is working,’ Deputy Prime Minister Serhy Tyhypko said.
More than half-way through the visit, IMF officials declined to give any timeframe for the resumption of loan payments, while Ukrainian government officials said the suspension could last until as late as February.
‘I presume we shall need one more mission in January. I presume there will be financing in February,’ Tyhypko said.
Kuchma, who promised to be a ‘new president’ following his Nov. 30 inauguration, tried to reassure Odling-Smee during a meeting Dec. 3 of his determination to pursue radical reform policies.
‘Nobody in Ukraine is as interested in a quick transition to radical reforms as I am,’ Kuchma said.
The government is desperate for new loans ahead of February and March, when payments on Ukraine’s 1998 Eurobonds, totaling about $1 billion, fall due.
‘We should do whatever we can to resume work with the IMF no later than the end of February,’ Finance Minister Ihor Mityukov told reporters.
But as Ukraine continues its difficult talks with the lenders, some observers say the government already has missed the deadline when it could have hoped for a positive outcome.
‘We had opportunities before, but we missed them,’ said Borys Zozulya of the State Savings Bank. ‘Strategic enterprises should have been privatized three or more years ago. Instead, we kept on feeding those practically bankrupt plants and at the same time asked for more and more money. ‘Now the day to pay them back has come,’ Zozulya said.
