Ukraine’s government starts to implement IMF conditions

Deputy Prime Minister Hryhoriy Nemyria  announced that Ukraine’s government has approved all decisions required by the International Monetary Fund (IMF) prior to disbursement of the second tranche of a $16.5bn stand-by credit. Russian Finance Minister Alexei Kudrin is also considering Ukraine’s request for a $5bn loan.

“I would like to note that due to constructive cooperation between all of the components of the process today at a meeting of the government, we took an agreed decision, which we think will allow us in the near future to achieve practical results regarding the return of the IMF mission, and after some time, [allow the IMF] to make a decision to provide the second tranche of the loan,” Nemyria said at a briefing in Kyiv on Wednesday, March 11, according to Interfax Ukraine.

Nemyria also said that “a number of important decisions” were made at the meeting of the government to ensure the independence of the National Bank of Ukraine (NBU).

Nemyria said a number of other issues had been resolved in a way acceptable to the IMF: amending a resolution of the Cabinet of Ministers and the NBU on bankrefinancing; amending a government resolution on the issue of the state participation in bank capitalization; canceling Articles 84 and 86 of the Law of Ukraine on the 2009 national budget.

The Association of Ukrainian Banks today cited Steen Edzerskov, the advisor for the NBU from the IMF, as saying the IMF wanted Ukraine “to simplify the procedure of receiving of refinancing by banks and removal of subjective factors in decision making on refinancing of banks.” This refers to abolishing the present requirement for case-by-case government consent for NBU refinancing of banks.

Resident IMF representative Max Alier, yesterday told Troika Dialog analysts that the IMF had agreed to soften the budget deficit target criteria from its previous zero deficit less bank recapitalization costs, according to Troika. However, no specific number was mentioned.

The IMF had previously said it would soften its stance on the deficit if Ukraine could find non-inflationary ways of financing it, such as loans from foreign countries. This week Russian finance officials confirmed that Ukraine had officially requested a $5bn loan. Russian finance minister Alexei Kudrin said yesterday March 10 that he was considering the request.

Such a loan is however likely to be politically very divisive. President Viktor Yuschenko has compared Prime Minister Yulia Tymoshenko’s negotiations with Russia for a $5 billion loan with the Molotov-Ribbentrop Pact between Nazi Germany and the Soviet Union in 1939.

Leading political forces – the Prime Minister, the President, the speaker, the governor of the NBU and the opposition leader – are set to meet today as part of the necessary process in acquiring the second tranche of the IMF loan. The previous letter – drafted after similar meetings – was considered by IMF officials and returned to the authors with relevant remarks.

“One of the IMF’s main concerns is the restored independence of the central bank as well as a realistic forecast for the state budget deficit and sources of its financing,” says Alfa Bank’s Denis Shauruk, adding, “we expect all disputed issues to be addressed by the end of March.”