"Merciless" IMF: Ten main requirements of the Fund for Ukraine

Author : Ukrainska Pravda

Source : 112 Ukraine

What basic IMF recommendations should be done by the Ukrainian government in order not to spoil relations with international creditors?
23:16, 6 April 2017

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Twitter Sviatoslav Tseholko

Homework from IMF. What basic recommendations (requirements) of the Fund should be done by the Ukrainian government in order not to spoil relations with international creditors?

Ukraine has received the fourth tranche of the IMF. $ 1 billion would be credited in international reserves of the National Bank and are expected to strengthen the hryvnia.

The day after the decision was taken, April 4, the IMF published on its website the long-awaited memorandum with Ukraine. Later, Ukraine’s Ministry of Finance did the same.

The published text of the document is almost identical to the previous unofficial version, which was published on March 13 published by "Batkivshchyna" party. In some places, the deadlines were changed.

Related: National Bank of Ukraine receives funds from IMF

In the next few months, this document would set the agenda of the Ukrainian government and encourage its willingness to implement key reforms, including revision of the pension system, introduction of the land market, reform of law enforcement, and many other sensitive topics.

We enlist the key recommendations (requirements) of IMF for Ukraine. This is a kind of homework for the coming months for the government, Parliament and, of course, the president, without which most of the questions cannot even get off the ground in Ukraine.

Firstly, Parliament should adopt a new pension law. The deadline  - until the end of April 2017.

Released materials contain three separate investigations. One of them relates to the need to reform the pension system of Ukraine. The study recommends the IMF gradually raise the retirement age to 63-65 years (for men – up to 2026 and for women – up to 2031).

It is assumed that the pension reform would be launched immediately on 1 January 2018.

Secondly, by the end of May, Verkhovna Rada would need to do the impossible and adopt the law on turnover of agricultural land. Thus, the moratorium on the sale of public and private property should be abolished by the end of the year.

Related: IMF starts to transfer tranche to Ukraine

"We have created a working group with the participation of relevant ministries, which in cooperation with the World Bank to develop a bill on opening the land market. It would allow the sale of land for the proper precautions," as stated in a memorandum.

"It is expected that Verkhoovna Rada would adopt the Law on turnover of agricultural land by the end of May 2017. It would allow the current moratorium on land sales lose power since the end of 2017, thus allowing immediate sale of state and private land," the document says.

Ukrainian government also promises to "launch a campaign to educate the public and explain the benefits of the reform."

This is one of the most sensitive issues, along with pension reform. So it is interesting how the government is going to conduct appropriate information campaign. It is also unclear why the explanatory campaign has not been started earlier.

Related: Kyiv expects $ 4.5 bn from IMF by end of year

Thirdly, the document also contains a point that Guarantee Fund would sell assets for at least 10 billion UAH in the international trading platforms. In fact, it means that two pools of assets (carrying value at 10 billion) would be sold. Taking into consideration the debt of Guarantee Fund to the NBU, it is likely to remain a subsidy structure.

Fourth, the Ukrainian government should finally begin mass privatization.

By the end of August 2017, the new law "On privatization" should be approved. This, incidentally, was one of the structural lighthouses that Ukrainian authorities had to fulfill by the end of last year.

In addition, Ukraine also promised privatize "Odesa Port Plant" and involve to a competition some reputable international investors. Privatization is expected to end up in the first half of 2017, which also looks very ambitious.  

Moreover, the memorandum stipulates that Ukraine would initiate the privatization of many state enterprises: PJSC "Centrenergo", "Turboatom", whose particles have already been transferred to the State Property Fund, and regional power distribution companies, power companies, whose share would be transferred to the State Property Fund in end of April 2017.

Related: Poroshenko thanks Lagarde for IMF tranche during phone call

"Ukrspyrt" should be also privatized by the end of September 2017, according to the memorandum.

Fifth, by mid-April Ukraine should complete selection of internationally recognized firm that would moderate negotiations on the terms of restructuring and debt collection for problem loans of Privatbank. The deadline - until 15 April 2017.

Moreover, the memorandum contains new items on investigations lending operations past transactions with related parties. "By mid-March 2017 the NBU would continue and expand the work of internationally recognized companies providing NBU assistance. Although it is worth noting that the prospect of their return is very elusive.

Sixth, by the end of April, Verkhovna Rada should adopt a law on the establishment of a new civil service responsible for the investigation of financial crimes against the state. This is the body that would replace the notorious tax police, which virtually ceased to exist from its very beginning.

Seventh, by 15 June 2017, Verkhovna Rada should adopt laws on creating anti-corruption courts. Today's court system has exhausted itself and must be restarted.

Related: IMF releases Memorandum on Ukraine’s economic and financial policy

Eighth, by the end of July the authorities should also check settings of utility subsidies for households to improve targeting.

In addition, they plan implementation of the adjustment of social norms in the off-peak months during the heating season. And "fare for delivery of gas and heating" is also planned.

Ninth, by the end of summer Cabinet must approve a resolution on the monetization of public subsidies.

Tenth, by the end of the year the Ministry of Finance should create a centralized database of recipients of social assistance.

It should also be noted that the memorandum allows the release of government bonds worth 98 billion UAH for the capitalization of banks and Deposit Guarantee Fund in 2017. The experts believe that these funds would be mainly directed to the capitalization of state banks.

Interestingly, the document also stipulates that Ukraine should refrain from the functioning of the newly established state export credit agency "until all relevant costs and capital requirements for the next three years are not be clearly defined on the basis of an independent assessment and included in the state budget," as said in budget.

Export credit agency was the subject of negotiable political parties in adopting the budget.

Related: IMF Board of Directors approves $1 billion tranche for Ukraine, — Poroshenko

Also, the document suggests that The National Commission for State Regulation of Financial Services Markets soon would be eliminated, and its functions would go to NBU and The National Commission on Securities and Stock Market. "The responsibilities of oversight by a number of financial intermediaries would be transferred from the National Commission for State Regulation of Financial Services Markets, the National Bank and The National Commission on Securities and Stock Market.

In particular, the NBU will be responsible for the regulation and supervision of insurance and leasing companies, credit unions, credit bureaus and other non-bank lenders, pawnshops and other financial companies, and The National Commission on Securities and Stock Market would be responsible for the regulation and supervision of private pension funds, issuers of mortgage certificates, funds for finance the construction and real estate funds," the document says.

Related: IMF to consider assigning € 1 bn loan for Ukraine

The adoption of this law in the second reading was scheduled for end of March 2017, and full implementation should finish by the end of December 2017.

Related: Blockade of IMF tranche for Ukraine: Why the Fund took a timeout

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