An IMF mission will visit Ukraine in less than a week. In fact, this one should be referred to as a historic or even rescue one, considering the domestic economic situation. According to the press service of the IMF Resident Representative Office in Ukraine, referring to IMF Resident Representative in Ukraine Max Alier, this mission will be led by Christopher Jarvis. Alier says it will discuss the possibility of a new Stand-By Agreement. Kyiv wants 10 billion in terms of special drawing rights (SDR) – or about 15 billion dollars. The previous agreement, to the same amount, was made in 2010 but brought Ukraine only 2.25 billion in SDR’s. It was frozen in the spring of 2011 and for a year and one half Ukraine tried in vain to talk the IMF into withdrawing the clause banning subsidies for natural gas supplies to households.
Experts in the economic field are sure that Ukraine’s future will depend on the outcome of these talks. Not coincidentally President Yanukovych gave Prime Minister Azarov a dressing-down during a meeting of the economic reforms committee. Political Analyst Volodymyr Tsybulko insists that this criticism is a signal aimed abroad; that Yanukovych may well have to retire Azarov to get the IMF loan: “The President is thus demonstrating to the West that he is prepared to fire the head of government to secure positive cooperation with the IMF.”
Sacrificing chess pieces and politicians often brings good results. Timing and making a good bargain are the main thing. In Ukraine, however, the economic game is being played in a way that defies description. Take, for example, the latest production statistics. According to the State Committee on Statistics, industrial output in December 2012 was lower than that during the same period in 2011 by 7.6 percent, and during 2012 was lower than during 2011 by 1.8 percent. Apparently, this does not lay good foundations for economic growth in 2013. The Ukrainian government isn’t likely to greet the IMF mission with impressive GDP figures, considering that these figures should indicate the capability to repay the previous and future debts.
Valerii Lytvytsky, chief advisor to the head of the National Bank of Ukraine, says Ukraine, unlike a dozen other countries, has avoided full-scale recession and will have zero point several percent plus for the year; that this may expedite economic growth in 2013 by almost 3.4 percent. Whether the IMF experts will take this into account remains to be seen. They know as well as we do that domestic market demand, due to an increase in real wages in 2012, was achieved not by an increase in labor productivity but by the achievements of previous periods.
It is also hard to predict the IMF mission’s reaction to Azarov’s allegation that a tangible increase in individual commercial bank deposits is the result of progress in the Ukrainian economy: “These individual deposits have reached 366 billion hryvnias, a sum that equals that of the state budget’s annual incomes.” The sum is impressive, but the question is whether this money stimulated the economy in terms of loans or helped the government patch up the budget with its generous social and other spending. The likelihood of the latter is big. Ukraine owes the IMF some six billion dollars in 2013 alone and they are, of course, aware of the situation. Hence their conclusions on the creditworthiness of the Ukrainian economy. Not coincidentally, prior to the IMF mission’s visit — and prior to the meeting of the economic reforms committee — First Deputy Prime Minister Serhii Arbuzov and Finance Minister Yurii Kolobov were sent on a reconnaissance mission to the US. They are expected to meet with potential investors and convince them that Ukraine is an attractive investment option.
Concorde Capital analysts appear to believe that the hryvnia’s quick devaluation would be a convincing argument for the IMF and investors; that this would help come to terms with Ukraine’s key creditor, the IMF; that the hryvnia exchange rate dropping to 8.6 per dollar in 2013 will allow to lower the current account deficit by four billion dollars; but that maintaining the current exchange rate will stop cooperation with the IMF, with the National Bank of Ukraine (NBU) losing control over this rate this spring.
Says Roman Shpek, chief advisor to Alfa Bank (Ukraine): “During the talks with the IMF the Ukrainian side will have to produce a clear-cut business plan relating to public funds and outlining reforms aimed at lowering central, Naftohaz Ukrainy, and Pension Fund budget deficit. The IMF mission must be supplied with a comprehensive action plan that will get Ukraine out of the crisis, help solve the existing problems and eventually stimulate economic growth. Fitch Ratings share these views: unless Ukraine receives money from the IMF in 2013, it will face the risk of further dwindling away of NBU reserves and uncontrollable devaluation of the hryvnia.
Interestingly, on the eve of the IMF mission’s visit no one in Ukraine seems to remember Azarov’s statement that Ukraine can live without IMF money. Today’s moods are the exact opposite. Eric Naiman, an independent expert and Capital Times partner, says that, given the ongoing crisis in Europe, an IMF loan is the only tangible resource Ukraine can get. In view of devaluation expectations in Ukraine, getting this tranche will automatically put an end to these expectations. He explains that the IMF’s main economic requirement is an increase in gas prices, and that this requirement remains to be fulfilled; that this increase is absolutely necessary, although he is not sure that the Ukrainian government is of the same opinion. In his opinion, it stands 10 percent of a chance of getting the IMF loan.
Andrii Novak, chairman of the Committee of Economists of Ukraine, deputy rector of the European University, sounds more optimistic. He reminds that the IMF is interested in financial cooperation with Ukraine, whereby Ukraine will be practically able to refinance the IMF loan: “Our civilized world does not want horrible economic metamorphoses in a country as large as Ukraine.”
