To be or not to be: IMF and granting Ukraine a loan

Author : Oleksandr Okhrymenko

19:19, 22 January 2016

To be or not to be: IMF and granting Ukraine a loan

Author : Oleksandr Okhrymenko

There is a high probability that the next IMF mission will leave Ukraine without elaborating a draft of the Memorandum and the new financing program

19:19, 22 January 2016


Last week, Gerry Rice, Director of the Communications Department at the International Monetary Fund (IMF), kindly agreed to answer a few questions about Ukraine. He highlighted some aspects of Ukraine’s future and the next IMF loan.

It should be noted that he answered very unwillingly and repeatedly asked not to give him questions.There is an opinion that the IMF was simply tired of messing with Ukraine.

We asked Jerry Rice a very provocative question: "I think everyone would be interested in this subject. I would like to ask you about Ukraine’s debt. Now, when Ukraine has officially defaulted, I have a question for you: how will financing program in Ukraine operate in terms of the new situation? Are you planning to continue it?"

The answer was given in the best diplomatic tradition.

Jerry Rice replied: "I want to remind that the IMF mission came to Kyiv in November (2015) for the preparation of the second review (the review of the implementation of the IMF program). Since then the discussion of the program between the parties continues. This discussion was constructive. A significant work was done at a technical level of mutual agreement between the parties, and this work has allowed the adoption of budget 2016, and it was at the end of December last year. So we stand on the position that it is necessary to build on the work already done, then to pave the way for the second review and to continue cooperation in 2016.

Related: Ukraine expects USD 7 billion-large IMF loan, - Poroshenko

I cannot give a precise time, when the second review will be completed. It depends on solving some outstanding issues, which hopefully will soon be resolved. These unresolved issues relate to the structuring of financial measures that are necessary for sustainable development in the medium term. I mentioned the budget approved by Ukraine at the end of the year, which proposes a deficit of about three and three quarter percent of GDP, and it is generally consistent with the objective of the IMF program. I think that our permanent representative in Kyiv has already raised this topic today.

As discussed before, our position concerning the issue of debt will focus on encouraging Ukraine and Russia to achieve a compromise solution. It will contribute to the financing and the objectives of the program. These efforts regarding compromise to be taken into account when drafting the second review and further financing of Ukraine, but still I cannot tell you the concrete date".

Related: IMF may grant next loan to Ukraine in the near future, - Lagarde

Let us omit all the diplomatic trappings and look at a practical perspective. The IMF does not have a clear opinion whether to continue to fund in Ukraine. It is expected that in the IMF mission will come to Kyiv in the near future, which once again will try to analyze the implementation of the Ukraine IMF program, approved in February 2015, when Ukraine received a loan under the Extended Fund Facility. This analysis will be base for reviewing the extended financing program. IMF and Ukraine will have to sign a new memorandum. This Memorandum may propose new financing conditions and demands. Obviously, one of the requirements of the new financing program in Ukraine is negotiating with Russia and the search for a compromise solution. In case of failure, funding program will be suspended. Nevertheless, the IMF is not going to interfere in this conflict and will observe it neutrality.

Related: IMF: Ukrainian budget is good

There is a high probability that the next IMF mission will leave Ukraine without a new draft of the Memorandum and the new funding program. The representatives of IMF clearly comprehend it, and therefore they cannot set the date of launching Ukraine’s lending package in the framework of a new program. Probably, the IMF mission will arrive in Ukraine and the negotiations will last for the whole 2016 year, but no loans from the IMF would come neither in 2016, nor in the nest years.

Advices of the IMF seem to be wrong and meaningless, and they failed to result in Ukraine’s sustainable development and stable economic growth.

Related: World Bank approved $560 mln loan for road reconditioning in Ukraine

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