Why the IMF recommendations to Ukraine appeared to be wrong

Author : Oleksandr Okhrymenko

15:43, 9 September 2015
Why the IMF recommendations to Ukraine appeared to be wrong

Author : Oleksandr Okhrymenko

Recipe of reforms is: taxes rise, spending cuts

15:43, 9 September 2015


Ukraine has started close cooperation with the IMF after taking the first tranche, and since that lives strictly after the Fund’s prescriptions and recommendations. During this time, Ukraine received totally near $ 12 billion, and refunded after the previous debts near $ 5.5 billion. After the conditions of cooperation, Ukraine has acted under the IMF advisory, which was supposed to provide unprecedented growth and give birth to an economic miracle. However, practice appeared to be rather different from IMF forecasts and projects. Economy’s functioning outcomes seem to be sorrowful.

Hryvnya has shown its devaluation nearly for 2.7 times, taking the world’s high spot by this criterion. This is the “merit” of the IMF, which advised to devaluate hryvnya. In practice, any specialist who is accustomed with Ukrainian economy understands well that even the 5% devaluation leads to a serious risk of hryvnya collapse. Control over stable hryvnya rate must not be lost in conditions, when amount of cash constitutes near 100 billion. Everyone but IMF knows and understands it. Now, when hryvnya rate is firmly fixed by the National Bank of Ukraine, it is clear that IMF has mistaken in its advice, despite that IMF and the NBU are fond of lying to each other concerning “flexible rate of hryvnya” and “targeting”.

In 2014, Ukrainian GDP declined for 6.8%, in 2015 the fall will compose even more. For the first quarter, GDP reduce was 17.2%, for the second – near 14.7%. It looks like for the whole 2015 recession will show no less than 15%. Albeit the IMF promised GDP growth near 2% in 2015. It was IMF’s advice to start closing banks in order to “improve” the bank system. As a result, the latter just collapsed. Crediting isn’t working; many Ukrainian businessmen have lost their deposits, but still the main burden has been experienced by ordinary Ukrainians, who now fear banks more than plague. Without normal functioning of the banking system business development is impossible. GDP growth may be forgotten for years.

For seven months of 2015, Ukrainian economy demonstrates only decline records. Even agrarians suffered recession, however not as severe as the industry. But the IMF still recommends keep ruining Ukrainian economy through fiscal press. For the Fund, the main aim of any reform is reducing the budget deficit. Indeed, after the first half of 2015 national budget has shown proficit, which is unprecedented. But what is advantage, when economy is collapsed? Retail declined for 25%, real salary for 24%, inflation constituted nearly 40%. But see, we have proficit!

Obviously, proficit’s origin is very simple. National budget accumulated debts for almost ₴ 47 billion. As a result, the IMF is satisfied, and economy is crashing. In fact, this money was expropriated from business in order to reach figures recommended by the Fund.

The IMF used to criticize Ukrainian government frequently and heavily before Maidan in high level of pensions and salaries. Now, for the second year Yatsenyuk’s Cabinet keeps pensions very low, while inflation breaks all records. The IMF considers it to be a great reform. No one is surprised that by the level of minimal income Ukraine neighbors with Zimbabwe and Ethiopia. We were going to Europe, but came to Africa. Furthermore, promised growth of pensions and salaries this autumn won’t save the situation. It is ridiculous to wait sensible improve of incomes level, when its real measure draws up 13%. But the IMF is satisfied.

The problem is that the Fund’s recommendations and reforms are absurd by its essence. All the reforms conclude of taxes increasing and public spend cutting. And they still wait for economic miracle after it, but can’t explain themselves how such austerity may stimulate any growth. But this is the only way the IMF works. They lend money, much less than they promise, but require from the victims of their experiment to perform all what was advised in order to check, will they survive or not.

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