Ukraine moves towards IMF agreement

After signing a joint declaration to the Fund together with the president and central bank governor last week, Ukraine’s government yesterday March 12 made further steps towards renewing the IMF’s $16.5bn lending Program, according to Interfax. Deputy PM Hryhoriy Nemyrya said it was very likely the IMF would approve disbursement of the second loan tranche to Ukraine by the end of March.

Nemyrya said yesterday following a meeting between President Viktor Yushchenko, Prime Minister Yulia Tymoshenko, National Bank of Ukraine (NBU) head Volodymyr Stelmakh, and Verkhovna Rada Speaker Volodymyr Lyvtyn that the government made several decisions to ensure the independence of the NBU, make changes to the state’s bank recapitalization program and cancel contentious articles in the state budget law for 2009. He said the measures made disbursement of the second tranche of the IMF stand-by credit attainable by the end of March.

Regarding central bank independence, NBU Deputy Head Anatoliy Shapovalov said amendments to a government decree introduced yesterday meant that the Bank was no longer required to coordinate disbursement of refinancing loans with the government, though it would continue to report on its refinancing decisions.

Regarding the deficit, IMF Resident Representative in Ukraine Max Alier said the Fund and Ukrainian authorities reached an “understanding” with respect to the budget deficit. He did not provide any numbers, but mentioned ageement on an “acceptable and adequate level.” Alier alluded to decreased government spending, and sources report the government and IMF agreed to a 3% deficit, according to Galt & Taggart.

Dragon Capital’s Olena Bilan likewise expects the IMF to agree to a deficit of 1-2% of GDP net of bank rehabilitation costs, “or even higher if Ukraine makes the revenue target more realistic in view of the ongoing economic decline and succeeds in securing non-inflationary financing on top of IMF aid.”

The Cabinet meeting was held with the presence of IMF and World Bank representatives, who confirmed that the decisions made at the meeting complied with the IMF agreement.

The Cabinet also approved the budget of Naftogaz Ukraine with a surplus, which may signal that the Cabinet has also approved increased tariffs for natural gas supplies to households, according to Alfa’s Denis Shauruk.

“Nemyrya’s involvement and cooperative rhetoric, as well as wide agreement among key domestic figures, point to an improvement in Ukraine-IMF collaboration in the near future” says Galt & Taggart analyst Danylo Spolsky.

Further negotiations will probably center on budget parameters and ways to reduce budget expenditures without hurting the most vulnerable social groups, according to Dragon’s Bilan.

Graham Stack for business new europe (www.businessneweurope.eu)