An International Monetary Fund mission was to have arrived in Kyiv last Monday under a previously concluded agreement. But it fizzled out, so to speak. Washington seems to be dissatisfied with Ukraine. Meanwhile, this country is developing a less-than-welcome tradition: if some interstate negotiations fail, their outcome is hidden under a veil of silence. This applies to the recent visit of our president to Moscow, when Ukraine tried to persuade Russia to revise the imported gas price formula, as well as to the visit of Finance Minister Fedir Yaroshenko and Energy and Coal Mining Minister Yurii Boiko to Washington to negotiate with the International Monetary Fund. The only piece of news that almost coincided with their comeback was that the planned visit of an IMF mission to Ukraine would not take place on the preplanned and agreed-upon date. Is this a failure or just a time-out for a more careful consideration of the decisions to be made? There have been no official comments from the abovementioned visitors.
It is only David Lipton, Special Advisor to the IMF Managing Director, who issued a telegraph-style statement for those who can read between the lines. The IMF website quotes Lipton as saying: “I stressed the importance of strong policies and reforms to overcome delays and complete the second review. The authorities reaffirmed their commitment to the objectives of the stand-by arrangement program and the implementation of pending measures. The next Fund mission to Kyiv is now scheduled for late October.” In other words, the negotiations produced no tangible results. And did our government expect to get any? Sending Yaroshenko and Boiko to Washington, Prime Minister Mykola Azarov said something entirely different: Ukraine must develop the economy and earn money not to depend on loans. Very good words, in principle. But why not make use of the IMF loan program, about which a special agreement was signed? No one else has insured Ukraine against a new world crisis that may break out. Will our ship have enough “financial buoyancy?”
It will be recalled that, while clearing the second stand-by installment (1.6 billion dollars) to Ukraine on December 22, 2010, the Fund also set certain short-term goals to our government. However, the Fund mission that worked in Kyiv last March doubted that these goals would be achieved and did not advise the IMF Board of Directors to make a positive decision. Since then, the IMF has been waiting and the government of Ukraine has been between a rock and a hard place: the demands of international creditors and unwillingness to finally spoil relations with its own people.
The first and by far the most difficult goal the IMF set to Ukraine is pension reform. As the grassroots are taking rather a dim view of the latter, the law to this effect has not even been submitted for presidential signature. The same applies to increasing household gas and heat charges – a decision the government finds difficult to fulfill almost on the eve of the parliamentary elections. The next option is a version of the previous one. International bankers agreed to a reasonable increase of rates provided the government manages to find the budgetary resources that will make up for this concession. And, finally, the following: the IMF believes the National Bank should be exempted of having to buy out recapitalized government bonds, as this contravenes the principle of a regulator’s independence.
Yet most of the experts The Day polled do not think Ukraine is now in bad need of IMF loans, but they are sure the stand-by arrangement should work, rather than be called into question, so that this country does not lose out on its investment attractiveness which has already been somewhat tarnished by political events.
Speaking of the likely consequences of IMF loan deferment for Ukraine, Oleksandr Paskhaver, president of the Center for Economic Development, pointed out an interesting particularity: “The combination of a second wave of the crisis, be it even far weaker than the first one, and the denial of [IMF] loans is fraught for Ukraine with serious economic consequences or far-reaching concessions to Russia in exchange for its loan.”
But the prime minister is, naturally, not afraid of losing the loan. “I say it again: we do not need money now. If we ever need some, we will go to Washington, set some conditions, fulfill the conditions that creditors will be setting to us, and receive this installment. There are no obstacles to receiving the [IMF loan] installment,” he told journalists last Friday. “Yesterday’s IMF statement means that cooperation is actively developing, not just continues. The real situation is that our finance minister, fuel and energy minister, and the National Bank governor held negotiations with IMF directors, agreed on how to monitor the program, and scheduled the date for the mission’s visit.” You are talking right, Mr. Azarov, as befits a statesman, in order to forestall any panic. But is it statesmanlike to send two ministers, plus the NBU chief, and plus some other bureaucratic entourage across the ocean only to postpone the date of the IMF mission’s visit to Kyiv? Meanwhile, the government would like to hope that, as a result of the October-November negotiations, two stand-by installments will be put together, which will allow the NBU to top up its reserves with about three billion dollars at one fell swoop. Also noteworthy is Azarov’s intention to set conditions to the IMF. What is this: belief in his powers or abnormal self-confidence which “old man Krylov” [Russian fabulist. – Ed.] once described as conflict between an elephant and a little dog?
Unlike the premier, Verkhovna Rada Speaker Volodymyr Lytvyn was rather reserved in his comments on the postponement of the IMF mission and, therefore, the issue of the loan installment. In his words, “this is, in all probability, a psychological and, if I may say so, political moment.”
What is the speaker hinting at? Let us hope that Ukraine’s domestic policies are not having a very strong effect on IMF decisions. In our view, international bankers should put macroeconomics and the borrowing countries’ public finances above everything else. From this angle, Ukraine has good prospects. The way the budget is gaining revenues causes no complaints. The estimated revenues of the 2012 state budget have already been coordinated with the IMF, and, according to Iryna Akimova, First Deputy Head of the Presidential Administration, budget expenditures are being hammered out now. “This means the government is taking a serious attitude to drawing up the most important document. I hope that, as it was planned, this document will have been moved in parliament by September 15,” she said, thus explaining indirectly why the IMF mission will arrive in Ukraine as late as late October, i.e., by the time the budget might have been discussed and passed in the Ukrainian parliament. What is standing in the way? Let us try to hear the answer from some of The Day’s experts.
Asked by The Day, Valerii HLADKY, director general of the BEST analytical center, spoke on the budget from somewhat different positions. In his opinion, what caused a delay in the mission’s visit is failure to fulfill the IMF’s Ukraine program, namely or, to be more exact, this year’s budget. “Amendments were made to the budget, but all the saved funds were used for expenditure purposes, which should not have been done. For budget deficit reduction and stabilization of public finances is the IMF’s hobbyhorse,” he says. In Hladky’s view, such instruments of tackling the budget deficit as pension reform, increased household gas rates, and reduction of other expenses, are still to produce a result. “It is fully up to the government to implement all this,” the expert notes, “whereas the first thing for the Fund is to slash the budget deficit. If we manage to bring it down to the agreed-upon 3.1 percent of GDP, this will mean we are doing well with the IMF program. If not, we will run aground, so to speak.” Now that a serious decision has been made, a two-month delay of the installment is not something to be afraid of, the expert believes, and this will hardly have any negative consequences. But once the time is up, the IMF may come to one of the two conclusions: Ukraine is fulfilling its program, and in this case this country will receive the next installment, or the program has flopped. “There is no other option,” Hladky notes. “We will hold on in some way without an IMF installment, but we will hardly do so without the IMF program as a whole.”
Tetiana YEFYMENKO, president of the state-run research and educational institution Academy of Financial Management and one of those who drew up the government’s anti-crisis measures, does not think she should comment on the subtleties of domestic policies, but she is convinced that Ukraine “is capable of quite seriously handling the second crisis wave.” In her view, “we can do without the next installments, at least in the nearest future, and we can afford to have a delay… I don’t think there will be any problems if the money does not come very fast.” As an ordinary individual, Yefymenko can presume that “in principle, the IMF is mostly interested in the 2012 budget in connection with the gas price which is subsidized from the budget and, accordingly, has an impact on its deficit. The Fund also cares about the course of pension reform. We are not putting it off, but we want it to be discussed all over the country so that every individual can see what is going on. And there are some political circumstances which I would not like to comment on,” the Academy president says. At the same time, she believes that “goodwill and the concerted efforts of professionals in various political forces” could produce a positive result in solving the current problems. Yefymenko cites the example of Belgium now being torn apart by an interethnic conflict. “Nevertheless, they always form a sound budget,” she says. “I am sure we have a sufficient margin of safety, and, in my personal opinion, only the lack of concord among political forces may be a destabilizing factor.”
Olha MNYKH, associate professor at the Economics Faculty of Lviv Polytechnic, added a political aspect to variegated expert opinions on this problem. “The grassroots are not satisfied with these pension reforms. The economy is still in decline. If you also raise charges for gas and everything else, the share of poor people in this country will exceed 80 percent. So the authorities are afraid of a revolt…”
