Ukraine will get no new installments of loans from the International Monetary Fund or the World Bank until at least February, IMF and World Bank officials said on Monday.
While speaking hopefully about the IMF’s work with the Ukrainian government and the course of reforms in Ukraine, the message given by Patrick Lenain, the IMF’s representative in Kyiv, was clear: A Western bailout of Ukraine from the post-Soviet financial crisis is far from guaranteed.
In order to receive more IMF money, Ukraine must adopt a ‘realistic’ 1999 budget and prove it is serious about economic and administrative reform, Lenain said in a telephone interview.
‘Approval of a realistic budget will be essential to restore confidence for drawing of the IMF credit,’ Lenain said.
Lenain said the IMF mission that was in Kyiv last week would be followed up with another IMF mission in mid-January, after a 1999 budget is adopted.
The IMF has delivered two tranches worth a total of $335 million since agreement was reached in September on a three-year, $2.2 billion loan program. Lenain said the size of the next tranche, originally slated for delivery in November, is yet to be decided and will depend on progress in reforms.
Ukraine badly needs the IMF’s long-term, low-interest loans to replenish its National Bank hard-currency reserves, which have shrunk to $1 billion after interventions to defend the hryvna since the financial crisis struck in August.
The crux of the current financial crisis is that both Ukraine’s and Russia’s governments sold more high-interest, short-term treasury bills than they can afford to pay off. Ukraine has fared relatively well so far, but still has almost Hr 3 billion ($860 million) in T-bills to redeem by the end of 1999.
Also on Monday, the head of a parallel World Bank mission gave a generally upbeat news conference with a bleak message. Not only are all of the bank’s loans to Ukraine on hold, the future of the bank’s cooperation with Ukraine is in doubt, he said.
‘We have no choice but to reduce our activity in preparing projects because it will be a lot of money wasted,’ Paul Siegelbaum, the World Bank’s director for Ukraine and Belarus, said at the conference.
Siegelbaum said the bank had spent nearly $1 million preparing two projects this year that the parliament failed to ratify.
Last week, parliament failed to ratify an agreement with the World Bank providing government guarantees for foreign creditors, mainly in the agricultural sector, against political risk. Other World Bank loans for the energy sector are stalled due to parliament’s adoption of a ban on increases in energy tariffs and refusal to adopt other legislation.
The delay in the IMF loan automatically put on hold the $950 million of World Bank loans agreed on in September. So far, the bank has loaned Ukraine $340 million.
The World Bank would be ready to provide Ukraine with up to $800 million of aid annually if the government were to show its commitment to reform, Siegelbaum said, but it will have to think twice before planning new projects if Ukraine’s leftist-leaning legislature continues to obstruct bank-developed projects.
Ukraine has repeatedly signed on to major reform programs with the IMF and World Bank only to grab the initial tranches of low-interest loan money while leaving the reform programs to die in their infancy.
The IMF and World Bank have been cajoling Ukraine to restructure such industries as energy, coal and agriculture, but, on the whole, practices in those sectors remain little changed from Soviet times, while the overall condition of the industries has steadily deteriorated.
Before departing on Saturday, Lenain said the IMF mission recommended that the government concentrate on modernization of the government structure, especially the finance and economy ministries, and on reform of the agricultural, energy, education and health sectors.
Valery Lytvytsky, the president’s chief economic aide, told the Interfax news agency that the IMF mission was also worried that laws on the National Bank and cabinet still had not been approved.
Neither Lenain nor Siegelbaum commented on President Leonid Kuchma’s recent criticism of National Bank Governor Viktor Yushchenko or on Kuchma’s call for indirect National Bank emissions in a Nov. 19 speech to parliament. An earlier IMF mission had warned against such emissions.
Lytvytsky said the IMF expressed satisfaction with Kyiv’s monetary policy and noted improvement in tax collection and privatization, Lytvytsky said.
According to Lenain, the IMF considers the cabinet’s current draft of the 1999 budget to be generally satisfactory and in line with the fund’s requirements. The parliament’s budget committee produced a competing draft in which expenditures were set about 50 percent higher, to be covered partly by direct National Bank emission – in other words, printing cash.
Parliamentary leaders have said they expect the budget to be approved by the end of the month. However, in 1997 parliament didn’t approve a budget for the year until mid-summer.
