The mission of the International Monetary Fund, led by Ron van Rooden, worked in Kyiv from September 12 to 26. At the end of the visit, the Fund confirmed the beginning of discussion on a new three-year program within the framework of the expanded financing mechanism of Ukraine. However, the fact is the IMF emissaries left without a draft memorandum, promising only to continue discussion of the new program in the "near future". In parallel with rumors about the further development of cooperation with the Fund, there are a number of factors that allegedly led to the lack of specific agreements.
What we have now
Today, Ukraine is in the 14-month stand by program. The total volume of the program is 2,8 billion SDRs (special drawing rights), or about 3,9 billion dollars. This is 139% of our country's quota in the Fund. The first and so far the only tranche Ukraine has received on December 21, 2018.
Stand by was designed as a transitional program to promote the country's macroeconomic stability during two elections: presidential and parliamentary. A month after the victory of Zelensky in the second round, May 21, the IMF emissaries began work in Ukraine.
And then we digress at a small but resonant story. The very next day, upon the arrival of the Mission, several media reported that its representatives were allegedly returning to Washington due to the dissolution of the Ukrainian parliament. Later, the media denied this message, but the situation once again showed that the IMF’s work in Ukraine is certainly accompanied not only by official statements, but also by rumors that are easily confused with the truth.
Returning to the May visit of the Fund’s emissaries, we note that they flew to the United States without recommendations on the allocation of the next tranche. But ... they promised to return after the early parliamentary elections and as soon as the new government determines its policy priorities.
On September 11, the Fund’s representatives arrived in Ukraine. “We will find a common language with the IMF on all issues raised,” Prime Minister Oleksiy Honcharuk said on the same day.
It is known that Ukraine is negotiating with the IMF a three-year EFF (extended financing program) worth $ 5-6 billion. And following the September visit of the Mission, the government was counting on the conclusion of the so-called Staff Level Agreement, a preliminary agreement reached at a technical level.
During the work of the IMF representatives in Kyiv, the discussions on this program started, but no concrete results were achieved. Honcharuk called the “absolutely normal situation” that the mission left without an agreement on a new program. "We are calm. We understand what needs to be done and are in constructive negotiations with this organization," the prime minister said.
Finance Minister Oksana Markarova explained the departure of the Mission with purchased airline tickets. When on Snidanok z 1 + 1 show was asked why the IMF representatives left Ukraine without a decision announcement, she replied: "The IMF mission left Kyiv because they bought tickets for that day."
Meanwhile, rumors that “something went wrong” during the Fund’s work in Ukraine were gaining momentum. It is rather difficult to find the reasons for such a turn of events in the IMF statement, since the release following the visit was written in a restrained-neutral style and with the main emphasis on the fact that the discussion of the new program will continue "in the near future".
There were no official statements on the signing or non-signing of the memorandum of cooperation either from the Fund or from the Ukrainian authorities, which, perhaps, provoked various rumors. Assumptions are different, but we will recall only the most popular of them.
Why nothing tangible?
The first reason. The most fundamental issue, because of which the parties did not reach consensus, was the situation around PrivatBank. Honcharuk’s comment on a possible compromise with the former owner of the bank, oligarch Igor Kolomoisky, added fuel to the fire. However, the prime minister later said that no negotiations on the issue of PrivatBank were held with its ex-owner.
According to the former Secretary of the National Security and Defense Council of Ukraine Oleksandr Danyliyuk, IMF representatives voiced concern to Zelensky regarding possible compromises with the ex-owner of this bank. And the fact that the Mission left Kyiv without final agreements is considered to be a "very negative signal."
Kateryna Rozhkova, the first deputy head of the National Bank, also announced the Fund’s tough stance on the situation with PrivatBank. "It is unacceptable for the International Monetary Fund to challenge the nationalization as such. And the second point is important - the work on the return of assets, the return of money spent by the state," Rozhkova said.
The second reason. The threat to the independence of the NBU and the pressure on its leadership. The reason for such an assumption was the possible creation of a Temporary Investigation Commission on the investigation of the activities of the National Bank and the Deposit Guarantee Fund leadership in 2014-2019.
Reason three: confusion with the final version of the state budget for 2020. "So far, the fund has questions for macro indicators and the budget deficit," Ukrainian News writes, citing a source familiar with the negotiations.
Fourth reason: distrust to the Ukrainian side due to violation of agreements with the IMF by the government of Groysman, which continued to regulate gas prices. From the government of Honcharuk, there are no such attempts so far, but a gross violation of agreements in the past has increased the degree of mistrust in the current negotiations with the creditor.
Nevertheless, we recall the official release of the IMF and focus on the date and place of the next negotiations.
The discussion will continue
... two weeks later in Washington during the annual meeting of IMF member countries. According to the first deputy head of the NBU Rozhkova, by then "we will be able to hone the wording of the forthcoming memorandum and discuss the program in detail."
Following the results of these negotiations, Prime Minister Honcharuk admits the conclusion of a staff level agreement. "In a few weeks, our group of ministers will pay an appropriate visit to the IMF headquarters ... Perhaps (perhaps!), we will conclude a staff level agreement at this meeting. This means we will agree on the text of the memorandum," Honcharuk said.
Ukrainian government expects the IMF to open a new three-year program in December this year.
And if we don’t agree?
There are many thoughts and predictions on this subject, but we’ll immediately reassure that they do not belong to the category: “Ahh, we’ll all die!” But the IMF is one of the main financial partners of Ukraine, so the termination of cooperation will not remain invisible to the country's economy.
So, the President of the American Chamber of Commerce Andy Hunder considers it impossible to attract $ 50 billion of investments without the help of the Fund: "If there is no IMF, then mission impossible will be to attract 50 billion of investments," said Hunder. By the way, the Cabinet of Ministers program of activities envisages attracting foreign direct investment in the amount of $ 50 billion over the next 5 years.
“There is no IMF - there will be no investment, and there will be no further privatization, all that gives an impetus to the economy. Then what 40% can we talk about over the next five years?”, former NSDC secretary said.
In continuation of this pessimistic scenario, we add that the draft budget 2020 includes an amount of UAH 438.1 billion for the repayment and servicing of public debt. And the fact that the inability to pay external debts threatens with default is well known to everyone. But let's not talk about the bad things, and finally, we better recall the July promise of President Zelensky. And it sounded like this: "Default will not happen in Ukraine."