Competition on the credit market, skillfully engineered by the Ukrainian government, has turned out to be useful. Whereas previously the International Monetary Fund more often than not supported Ukraine financially (e.g., $16.5 billion worth of loan, with the first tranche of $4.5 billion received in November 2008), today the World Bank and Russia are among the potential creditors. The IMF, while regarding the Ukrainian cabinet’s anticrisis endeavors rather skeptically, finally agreed to amend the memorandum signed with the government, which means changes to its economic program. In particular, IMF no longer insists on Ukraine’s deficit-free budget.
How will the IMF’s giveaway game affect the Ukrainian cabinet and, most importantly, the Ukrainian in the street? For the government, a deficit-free budget is an aggravating circumstance, in that it restricts the possibility of producing economic indices with the aid of the inflation tax. For the citizenry, a deficit budget usually means an increase in the inflation rate, which is a deadly trap in this case, although there are, of course, people in Ukraine who have nothing to fear because they made their fortunes using it.
Be that as it may, the IMF appears to be offering us an opportunity to heal our economy by broad credit expansion. This assumption has to be verified by time because there is the possibility of the second IMF tranche never coming Ukraine’s way due to problems with the implementation of the memorandum and the soaring credit demand. If so, the World Bank and Moscow will be the proverbial straw at which Ukraine will clutch. WB is preparing a loan for a development policy and Russia is peeling off its $5,000,000.
Moscow’s credit, however, has given rise to a great many questions in Ukraine. Ukraine is said to have been buying Russian gas at a political price previously. Now, it seems, the time has come for political loans. Are not they a threat to Ukrainian independence? Probably even five-graders are pondering the possibility, for children know that a loan is given on certain conditions. Sometimes it is a friendly gesture, but more often than not credits are economic, commercial, because creditors are seldom interested in charity. All they want is to make money. Hence the interest payments. A credit rooted in politics is the worst option.
One ought to avoid such loans where and whenever possible. In the case of Ukraine, the prime minister appears to have her own conditions in regard to the credit from Moscow. While in Munich, Yulia Tymoshenko declared that she would make every effort to reconcile Ukraine with Russia. The latter seems to have reciprocated by positively responding to the request for a credit meant to cover the planned budget deficit.
After the gas war in January the attitude to the good news about the loan varies. What should Ukraine be afraid of? According to the prime minister, similar credit requests have been forwarded to the United States, Japan, China, the European Union, and other countries. Tymoshenko has refuted the allegations of some media that the Russian side has come up with additional requirements. “This is not true,” she stated.
Of late, there have appeared so many insinuations focusing on the government and its performance. Not so long ago, the finance minister related them in his “secret” message to the government. Now the media are busy producing devastating reports and features on the “secret talks” in Moscow. The Ukrainian government has no choice but to beat off these attacks. The president’s camp says the ministers do not want to tell the truth.
Tymoshenko must be credited with casting aside moral postulates when something must be done for the good of her country. And so the credit was really requested and has been granted. Now is the turn of myth — oops! — peace-makers.
