The IMF is dissatisfied with cooperation with Ukraine

The International Monetary Fund criticized the results of cooperation with Ukraine under the first stand-by program, which operated in 2008-2009. Such dissatisfaction directly affects the current cooperation with Ukraine - the fund has begun to more strictly control the implementation of the terms of the cooperation program and does not intend to deviate from its demands, experts say.

The International Monetary Fund (IMF) on Friday released a report on the implementation of the first cooperation program with Ukraine, which was opened in November 2008, when the government was headed by Yulia Tymoshenko. According to the terms of the program, during 2008-2009, Ukraine received three tranches of credit assistance from the fund in the amount of over $10.5 billion. However, in 2010, with the change of the Ukrainian government, the program was completed ahead of schedule and replaced by a new one, which is still in effect.

Assessing the results of the first stand-by program, the IMF admits: despite the fact that the fund’s loans helped mitigate the impact of the financial crisis on Ukraine, this did not lead to structural reforms in the economy. The main successes of their work at the IMF are the stabilization of the banking system, the correction of the current account of the balance of payments, as well as the prevention of arrears in social payments and sovereign default.

At the same time, all the fund's efforts to overcome structural and institutional shortcomings have reached a dead end. In particular, despite the commitments of the Ukrainian authorities, a sharp increase in the deficit of NJSC Naftogaz of Ukraine and the Pension Fund was allowed, which led to an increase in the state finance deficit, reform of the energy sector was not carried out, the problems of the banking sector were not completely resolved, and, in addition, The National Bank never moved to free exchange rate formation. Assessing the reasons for the unsuccessful cooperation, the IMF states that it took all measures to increase the effectiveness of the program, but could not limit the Ukrainian authorities in loans during the first part of the program. This increased the risks for the Ukrainian economy, although it would have stimulated the authorities to carry out reforms.

Experts agree with the foundation’s conclusions: in the conditions of the election struggle, the Ukrainian authorities really did not intend to carry out structural reforms. “The implementation of the previous program left much to be desired, as a result of which IMF representatives are now not ready to take the Ukrainian authorities at their word and expect concrete actions from them,” notes Renaissance Capital Ukraine analyst Anastasia Golovach. As a Kommersant source close to the Ministry of Finance clarifies, this even affected the attitude of the fund’s technical workers. “If earlier IMF officials came to negotiations in a good mood and trusted our data, now irritation is noticeable in their behavior, they double-check all the information that we provide them,” noted Kommersant’s interlocutor. The IMF's actions indicate an unwillingness to make concessions to the Ukrainian authorities when revising the terms of the current cooperation program. “The IMF clearly indicates that they still intend to focus on Ukraine’s implementation of structural reforms, a significant part of which have not been carried out. In particular, a possible reduction in the price of Russian gas does not eliminate the need for reforms in the energy sector,” notes Ms. Golovach.

In the current situation, there is an increasing risk that Ukraine’s cooperation with the fund will be frozen at least until the end of the parliamentary elections in October 2012. At the same time, starting next year, Ukraine will begin to return funds received under the first stand-by program and must pay SDR 2.23 billion (about $3.4 billion). “Given the deteriorating situation in the financial markets, we cannot refinance these funds with money raised on foreign markets, which means we need to negotiate with the fund on a new program. And the IMF is waiting for progress in structural reforms,” said the director of economic programs of the Center. Razumkova Vasily Yurchishin.

Prime Minister Mykola Azarov stated that the country is able to survive another year without IMF loans. A Kommersant source at the National Bank explained this position of the head of government by saying that Ukraine received an offer from the Chinese Central Bank to provide the country with a loan instead of IMF funds. Experts note that the presence of the fund in Ukraine has a rather psychological effect on Western investors, so they talk about the need to restore cooperation. “If the crisis deepens in global financial markets, pressure on the hryvnia will increase, and the support of the fund will help reduce this pressure,” says Erste Bank analyst Marjan Zablotsky.

Yuri Panchenko, Ruslan Cherny

Reshuffles in the tranche