The International Monetary Fund’s technical mission with Chris Jarvis at the head is to finish its work in Ukraine tomorrow. It has had a number of meetings and negotiations on a new stand-by agreement with Ukrainian government and National Bank representatives as well as with managers of the Association of Ukrainian Banks and the Independent Association of the banks of Ukraine. What will this mission leave our country with? Can we expect the mission to be able to persuade our unyielding government to reach a compromise even though it has repeatedly said that it does not intend to meet some of the IMF’s demands? Or will Azarov and Ukrainian MPs have enough arguments to force the IMF to show a bit of generosity and give us $15 billion while its advice is being ignored?
Naturally, nobody, including the Ukrainian premier himself, has a straightforward answer so far to these questions. At the same time, the expert debate on this subject looks quite interesting. I think the ideas expressed at this forum may be useful not only for the readers whose business largely depends on the results of these and further negotiations, but also for Ukrainian ministers who must regard the IMF decision as the dilemma “to be or not to be.”
Roman Shpek, member of the NBU Board and senior advisor to Alpha Bank, thinks that Ukraine could do without IMF money in the short term. At the same time, he is convinced that Ukraine cannot do without the reforms which the IMF is prompting Ukraine to carry out. And, meanwhile, reforms need to be funded until they produce the expected result. As the banker explains, IMF funds will serve Ukraine best of all for this purpose. The point is they cost a mere two percent, whereas our companies and government are lending today at 9-10 percent and 7-8 percent, respectively. “And as we won’t escape reforms, we are in bad need of cheap funds,” Shpek notes.
Ex-minister of economics Viktor Suslov agrees to this. He emphasizes that if no reforms are carried out, it will be impossible to preserve even the current very relative stability in the Ukrainian economy. He maintains that reforms in Ukraine ground to a halt back in December 2010, when we stopped cooperating with the IMF – “in any case, the entire world thinks so.” Among those who think that the Ukrainian government is capable of servicing its debts even without IMF loans is also Liudmyla Suprun, ex-chairperson of the parliamentary budget committee. But she says, however, that if the IMF gives a country a loan, this means that the entire world can cooperate with this country. “But if it does not give one, this means only one thing: Ukraine is a dangerous zone,” the economist says.
Oleksii Plotnikov, Doctor of Economics and 6th-convocation MP, does not stand out against the general expert background. In his opinion, it would be very good if the IMF continued to finance Ukraine. But, having enumerated all the inherent pluses, he still forecasts that “nothing will happen to Ukraine” even without IMF loans. He also reminds us that in 2002, when Anatolii Kinakh was the prime minister, there was a period of “loan-free cooperation, when help boiled down to advice.”
Oleh Ustenko, executive director of the Bleyzer Foundation, also agrees with the experts. But still he point to an important detail: a considerable part of Ukraine’s debts is short-term debentures. When these are being refunded, creditors always check up on full-fledged cooperation with the IMF. “It will be much easier to refund these debts with the IMF because investors are not exactly willing to invest in the developing and, hence, risky economies,” Ustenko claims and recalls that the programs of such important investors as the World Bank also depend on cooperation with the IMF. “In theory, we could do without the IMF, but is it worthwhile to do so?” he concludes. Besides, he explains that, without the IMF, we would have to set ourselves still tougher and more difficult tasks, such as trying to achieve a much smaller budget deficit than the IMF wants.
But when it came to assessing the magnitude of the concessions that Ukraine should accept, opinions differed. Suslov drew our attention to the prime minister’s recent statement that suggested that Ukraine would not opt for the loan out of political considerations. The president had said almost the same earlier, when he promised not to raise household gas rates contrary to the IMF demand. Suslov advises our country’s leaders to read again the IMF statute which says that the Fund’s objective is to ensure solvency of the borrowing country, level off its balance of payments, and create favorable conditions for investments and the development of foreign trade. “Refusing to cooperate with the IMF, we are thus rejecting not the money but the opportunity to balance our own economy and are heading for a debt crisis, for an abyss,” he says. Suslov believes that the Ukrainian government expects the US and the European Union – the main IMF shareholders – to pressure the Fund into giving a loan to Ukraine for political reasons: Ukraine seems to be choosing the Western vector of development and avoiding entry into the Customs Union. Suslov predicts that the IMF mission will be unable to make any positive decisions.
Meanwhile, Suprun cautions against idealizing anybody and says that the WTO also took an uncompromised stand at first but then agreed to make a concession and lifted the export duty on Ukrainian scrap metal. “Who is this preference for?” Suprun ask and answers: “It is a preference for Europe, aimed at supplying its steel mills with raw materials and lay bare our plants that stand idling without raw materials.” The respected economist harshly criticizes the government for being unable to make use of the country’s wealth. In her view, a country should guarantee its national currency by all its wealth, not by the gold and hard-currency reserve. According to Suprun, the former also includes 4.5 billion tons of emissions in compliance with the Kyoto Protocol. She says after a simple calculation that the government’s accounts comprise “a solid 16 billion euros that are not used for economic development.” Suprun advises the government to transform this national wealth into securities or any other financial instrument. “We are begging the IMF for a loan, while billions lie scattered just under our feet,” the ex-MP says indignantly.
But, as far as higher household gas rates are concerned, all the experts supported the IMF and pointed out that Ukraine must do this if it cannot balance its budget in some other way. The most active supporters of this step were Shpek and Suslov, who also said it was necessary to pay subventions to the poorer strata of the population. The Day asked Suslov if he was afraid that this measure might increase social tension. The ex-minister joked in reply: “I cannot imagine that our millionaires and billionaires will stage demonstrations against the household gas price hike because it will cost them a pretty penny to heat up water in their swimming pools.”
