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Four years ago Ukraine received IMF loan: What went wrong?

Author : Oleksandr Okhrimenko

22:48, 2 May 2018

Four years ago Ukraine received IMF loan: What went wrong?

Author : Oleksandr Okhrimenko

In May 2014, Ukraine received the first tranche of the IMF loan under the stand-by program. Then there was a lot of euphoria and various statements of politicians and experts about how Ukraine was lucky that the IMF gave it money. Only some experts then said that this loan will need to be given back and it will not be easy to do this.

22:48, 2 May 2018

Read original article at 112.ua

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I want to remind you that in May 2014, Ukraine received the first tranche of the IMF loan under the stand-by program. Then there was a lot of euphoria and various statements of politicians and experts about how Ukraine was lucky that the IMF gave it money. Only some experts then said that this loan will need to be given back and it will not be easy to do this. Now is the time to repay the IMF loan received in 2014, and again you can hear the talk that you need to continue to work with the IMF to get new loans to repay the old IMF loans.

In May 2014, many people said that the IMF loan, and especially the recommendations of the IMF, "will make Ukraine an economic miracle." They even called the mythical sum of 40, and then $ 70 billion, which will come to Ukraine after the IMF loan. It did not work. Now they don’t want to think about it, but say that the recommendations of the IMF are good, that's just something went wrong earlier ...

In fact, all IMF recommendations for Ukraine are meaningless and stupid, and following them more harmed the economy of Ukraine than helped it. But many politicians and experts can not admit that the IMF recommendations are a failure for Ukraine, because of their engagement and unprofessionalism. As a result, we again hear talk that Ukraine can’t live without "smart" advice from the IMF and without IMF loans. The fact that Ukraine in 2015 has already allowed a technical default due to the IMF and our authorities, MPs try not to remember.

The trouble is that the IMF advices are a priori meaningless and erroneous. IMF employees never really appreciate the economy of the country to which they give loans and advice, so their recommendations are more harmful than helping.

The IMF recommended devaluing the hryvnia, promising growth in exports, GDP and import substitution. As a result, the collapse of the hryvnia in 3 times led to a GDP collapse more than 17%, Ukraine's exports, even without taking into account the share of exports to Russia, fell by more than 40%, and the import substitution resulted in the fact that the production of the only domestic car in Ukraine ceased . In Ukraine, there is a very large share of cash currency, which is partly in the hands of the population, and partly serves the "shadow economy." Accordingly, as soon as the devaluation of hryvnia exceeds 5%, the currency panic begins and the hryvnia collapses. Therefore, Ukraine needs a relatively stable rate of hryvnia. Only with a stable exchange rate of the hryvnia GDP, exports and real wages of Ukrainians will grow. But it is difficult for the IMF specialists to understand; they simply do not know and do not understand how the currency market of Ukraine works.

The IMF recommended the reform of utility tariffs, so that the state budget is not subsidized by Naftogaz. As a result, housing and utilities tariffs have risen to a critical level, the debts for housing and communal services of the population are already over 40 billion UAH, through the subsidy system of housing and communal services is subsidized by Naftogaz for a sum that is three times higher than the amount of the 2013 grant. At the same time, corruption and schemes for "kickbacks" in the housing and utilities sector have grown many times. As a result, utilities are in critical condition because of a lack of money to pay utility bills, and the population cannot pay such high utility rates at such a low salary.

Prior to Maidan revolution, the average salary was about 450 US dollars, and now it is only 250 US dollars. The IMF has always told and promised that the devaluation of hryvnia will stimulate the inflow of foreign investment, as low wages will encourage businessmen to open a business in Ukraine. In practice, this led to the fact that Ukrainians simply began to massively go abroad to work. Because for the officials of the IMF with their American salary it’s hard to understand that living in Ukraine for $ 250 is difficult, and it's easier to go and earn 500 euros on picking strawberry than to wait for a miracle that will never happen.

The IMF recommended closing banks with a large share of bad loans. And this despite the fact that the share of problem loans in the banks of Ukraine in 2014 did not exceed 20%. After "cleaning the banking system" from the most "unprofitable" banks, the share of problem loans is more than 60%. At the same time, business lending has stopped altogether. In fact, Ukraine's banking system was destroyed to please the IMF, and now it takes years and years to rebuild it, and we should not expect cheap loans, like in the EU, which IMF experts constantly talked about, noting that in Ukraine there were many problematic banks. Rather, there are few qualified specialists in the IMF.

The IMF demand that the deficit of the state budget of Ukraine should be below 3% is already fulfilled. But where is the "miracle"? What is the point in Ukraine's low budget deficit, if the level of pensions in Ukraine is the lowest in the world? If the pension reform, which was recommended by the IMF, turned out to be a common profanation that did not improve the pension system in Ukraine. At the same time, the revenues of the state budget of Ukraine have actually more than doubled in these four years, but the cost of servicing the external debt has increased almost sixfold. Now there are two problems in Ukraine - where to find money for retirement and how to pay off foreign debts and pay interest on them.

While the Ukrainian government will continue to carry out meaningless advice of the IMF, citizens will leave Ukraine massively to work abroad; the business will go into a "shadow" or even transfer its assets abroad; banks will tell more how they will lend than really lend; the nominal salary may, and will continue to grow, but it will not grow in the real money for 2013 level. In fact, Ukraine needs decades to return to the level of 2013, despite the fact that 2013 is not the best year in the history of the Ukrainian economy. But following the advice of the IMF, Ukraine's economy can never recover at all, it will be in a state of permanent crisis, talking about reforms and that new IMF loans are needed.

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