The government of Ukraine entered October in a state of suspended animation. On the one hand, it awaits the visit of an International Monetary Fund mission which will decide what to do with a stubborn country that won’t raise household gas prices. The other trap-wire that poses a threat to this country’s budget and, hence, the government is the position of Russia in gas price negotiations. It is intended to try to remove this obstacle on October 18 in Donetsk which will host a regional economic forum with participations of the presidents of Ukraine and Russia. Concurrently, there may be a session of the interstate Russian-Ukrainian commission which may be instructed to examine the draft of a new gas agreement between Ukraine and Russia. Reducing the price for imported gas is supposed to allow the IMF to lift or ease its demands about the cost of the nationally-produced gas for Ukrainians. In any case, Vice Premier and Minister for Social Policies Serhii Tihipko is pinning a hope on this.
But the situation in Ukraine, which the vice premier says must find 95 billion hrynias in 2011 and 121 billion in 2012 to service the existing credits, is only one of the things that predetermine the IMF’s loan decision. Tihipko is saying again that 13 billion dollars has been reserved for Ukraine as part of the IMF standby package. “And it is very good because many others also need money,” he added, hinting, first of all, on Greece which has been on the verge of default lately. Nevertheless, our government is full of ambitions. It hoped to simultaneously receive two installments, which will allow topping up the NBU’s hard-currency reserves by three billion dollars and thus keep the national currency from being devalued.
The IMF is so far getting off with general instructions. For example, on October 5, it became known that it had instructed the governments of the countries with a developing economy, including Ukraine, to increase the budgetary discipline and help banks to reduce the amount of problem credits in order to offset the consequences of the euro zone’s debt crisis. The IMF forecasts in its World Economic Outlook that the GDP of the European emerging markets will grow by 4.4 percent in 2011 and by 3.4 percent in 2012 because global growth is also expected to slow down in this group of countries.
Natalia Novikova, an economist at Russia’s Citibank, presumes that the hryvnia’s exchange rate may drop to 8.2 per dollar by the end of this year and to 8.25 per dollar by the end of 2012. In her opinion, the cause of this is that “there is a huge hole in the balance of payments, and there is a so far limited supply of the hryvnia.” Market stability is being maintained by way of National Bank interventions, Novikova says. But, in her view, the balance of payments will deteriorate in the fourth quarter. “The pressure on hard-currency reserves, which will occur because the National Bank is checking the emergent volatility on the currency market, raises again the question of the necessity to attract International Monetary Fund loans,” the expert told journalists on October 5.
Naturally, Tihipko quite agrees to this opinion. He believes that, in the conditions of an unfavorable price situation on foreign markets, Ukraine should not expect to attract portfolio investments and speculative capital “at any price.” In his view, such a placement of securities will mean “that this country is in dire straits, it is the giddy limit…, and markets will immediately close.” He is also pinning hopes on World Bank and European Union international programs under which Ukraine can easily attract an additional 1.5 billion dollars. All we have to do is introduce some changes to 3 or 4 laws.
MPs will probably have to hurry up with this. The National Bank of Ukraine’s website reports that the current account deficit rose to 1 billion dollars in August (557 million dollars in July) and to 4.5 billion dollars over eight months. The NBU really hopes that failures in foreign trade will be offset by the growth of financial and capital accounts. But can there be any optimism in this matter if the consolidated balance of payments showed a surplus of 2.117 billion dollars in January-August, while it was 2.5 times as high (5.237 billion dollars) in the same period of 2010?
So we cannot do without the IMF. The downside is that hunting for its loan installments may lead Ukraine into a gas pitfall that Russia has dug. Will this happen in Donetsk on October 18?
