After promising the Ukrainian public credit-free relationships with IMF recently, the cabinet continues to build these relationships on quests for credits. Another round of talks with IMF is expected in September-November. The 2003 budget bill submitted to the Verkhovna Rada makes it clear that no one knows exactly how much Ukraine will ask as loans from the West (Petro Poroshenko, chairman of the VR Budget Committee says NBU counts on $500 million and the government is after a billion dollars). The objectives and structure of the expected credits remain off screen.
The cabinet also reported the updated amount of the public debt: $8,112,041,700. In other words, the draft budget program envisages an increment of $200 million by December 31, 2003. Total (with guarantees of loans to certain enterprises): $13,653,021,000. In the guarantee scenario, the cabinet proposes a hundred-million-dollar relief of governmental liabilities toward IMF, EBRD, World Bank, the United Bank of Bavaria, and so on. The above figures are evidence that the foreign borrowing emphasis – if everything goes according to plan – will shift toward Ukraine’s obligations direct to international financial institutions. On the one hand, this approach gives reason to assume that the number of cabinet-guaranteed business entities should not increase...
However, in the context of the meeting between Minister of Finance Ihor Yushko and Laurence Hann, coordinator of the WB project, Municipal Development Credit Fund, it does not seem worth analyzing the total amount of Ukraine’s foreign debt (as well as the mechanisms of “guaranteed” money allocation, budget know-how to monitor the process, and so on). Of no less interest is Budget-2003’s intention to make further borrowings on behalf of the state
After all, the financiers gathered September 25 to ponder the tranche amount (the government expects to receive $150 million by November 13, 2014, as per next year’s main state estimates) and a more tangible $15 million next year, under the said program. Budget-2003 motivates the next government loan in general terms: “Rehabilitation and development of municipal structures; introduction of a transfer formula into the State Budget; upgrading legislation by developing an appropriate legal framework of local borrowings.” Among the results expected by the cabinet are the “implementation of municipal infrastructure development investment projects; formation of a predictable and transparent allocation of transfers; creation of incentives for a better fiscal management at the municipal level; raising living standard in separate regions.”
Budget-2003 does not specify the regions or whose living standard – there are doubts whether this will ever be specified unless some information leaks out the Verkhovna Rada in the course of budget-haggling. What is known is that foreign loans are placed in Section 3 of the budget bill, beside financing the budget. Actually, it is hard to disagree with the finance ministry that it is necessary to develop the municipal infrastructure. Foreign and domestic investors have long (and vainly) complained about local administrative arbitrariness. The formula used by central authorities to define the priority of interbudget transfers (i.e., which region should receive how much) causes heated debate in parliament every year. The question, however, is whether to borrow that $150 million. One can only hope that part of this money will be regarded by the state as investment rather than lawmaking basis.
Budget-2003 offers even more interesting grounds on which to make direct loans (a total of 18 such grounds for the next year). In the case of the Modernization of the Water Supply and Drainage Systems in Lviv (WB is to lend $24,250,000 by 08.15.21, including $6,710,000 next year) and Expansion of the Heat Supply System of Sevastopol ($28,190,000 before 03.15.22, including $1,890,000 in 2003) projects, despite the possibility of this money not being used in an entirely purposeful manner (as the sums are too enticingly large), there is just some hope that the residents of Lviv, suffering from rigid fresh water supply schedules for a number of years, and those of Sevastopol, having similar central heating problems, will finally heave a breath of relief. Reformation of State Statistics, to be accomplished before 07.01.23, in keeping with “market economy requirements” (worth $30 million, including $880,000 expected next years), looks quite impressive. Another amazing thing is the motivation of program loans to modernize the tax service (a tranche totaling $100 million {sic}, including $3,500,000 in 2003), state treasury ($16,400,000 and $1,650,000, respectively), renovation of the Zmiyivska thermal power plant (32,367,350 euros to be supplied before 12.30.13 by the AKA-led Consortium of German Banks alone), and so on.
One of The Day’s reputed experts once said that a man in the street would be considerably more impressed if shown simple arithmetic demonstrating precisely how international financial institutions could help every Ukrainian citizen. Even more so if he could see how much every resident owed to organizations he knew about only from the media. Well, obviously this would do no good – not because economics says that such calculations are impossible – for sooner or later the taxpayers will have to foot all government bills – but simply because there is a standing procedure whereby bureaucrats borrow money and ordinary citizens repay every such debt.
INCIDENTALLY
Ukraine’s governmental delegation to hold the talks with IMF will propose to start a new credits program, the so-called anticipatory standard, reports Interfax Ukraine, referring to what Ministry of Economy and European Integration Oleksandr Shlapak had to say before flying to Washington to attend a regular IMF and WB meeting. He also noted that the new program contains the traditional IMF clauses, but that it is different from the “classical stand-by,” in that the borrower can receive the money only when he actually needs it. Mr. Shlapak said that the program performance and loan scope timeframe would be repeatedly discussed with IMF, adding that he believed the program would be implemented in 3-5 years and the amount of loans thereunder will total $600-800 million, reports The Day’s Petro IZHYK.
