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Wednesday, December 7, 2016

The IMF is making a third attempt to understand the Ukrainian economy


The arrival of the IMF mission to Ukraine was encouraged by Kiev. The authorities are confident that the next loan from the Fund will arrive to Ukraine soon. However, to the bitter drumming is still far. The IMF is the third time in three years have to change the loan program, because the Ukrainian economy doesn’t behave as we would like monetary Fund.

The mission of the International monetary Fund arrived in Ukraine, where it will operate until may 18. The main task of the IMF is to assess the work of the government and to review the aid program.

“Today, neither the Prime Minister nor other persons close to the government, not willing to give up the trough”

The last time the IMF revised lending program in March 2015, changing it for the so-called advanced funding. Its essence was reduced to the issuance of $ 17.5 billion in loans for four years. However, as with the previous program, it was suspended. Ukraine received the first and the second tranche of $ 5 billion and $ 1.7 billion in March and August 2015. But pre-concerted and implied the third and fourth tranches at $ 1.7 billion each IMF was not given.

The IMF is now the third time is going to change the rules of the game for Ukraine. “The current program has failed. Now, to continue cooperation with Ukraine, the IMF is necessary to revise it. Revision of the program involves new directions, “beacons”, assignments, etc. Can even review the amount of loans. The function of the mission is to find a compromise and with a ready recipe to move further”, – said the newspaper LOOK the head of the Ukrainian analytical center Alexander Okhrimenko.

Reasons to stop credit assistance from the IMF were a great many. The Fund was dissatisfied with the reforms, including the fight against corruption. But the main thing – Ukraine was not able to fulfill its economic “beacons”. When a Foundation gives money, it expects economic indicators that the recipient of the money needs to reach. The IMF should be clearly understood, from any money the state debtor will have to pay these loans.

Ukraine has not justified expectations of the Fund in 2014 and in 2015. Thus, the IMF expect that Ukraine will show GDP growth in 2015 of 2%, instead, the Ukrainian economy fell by 9.9%. Inflation in the country, the expectations of the Fund was to be not more than 7.4%, but the fact it was almost six times higher. The real wages of citizens of Ukraine last year was expected to grow by 1%, instead it fell by more than 20%.

The IMF had expected Ukraine’s state debt will decrease to 62% of GDP, the external debt – to 99% of GDP, in fact the first was 79%, the second – 131%. Kiev had to accumulate foreign exchange reserves in the amount of 26.7 billion dollars, in reality they were half that size. And the dollar was supposed to be 11.50 instead of 24 hryvnia hryvnia after the fact.

The only indicator that the government was able to draw to meet the IMF’s budget deficit by the end of 2015 by $ 45 billion. But it was achieved only by deception. “The Ministry of Finance had not noticed the debt in the amount of 20 billion USD on subsidies to housing, which was not financed by the state budget. And the Ministry of Finance forgot 9 billion UAH of the VAT return etc as a result made a beautiful figure for the IMF. But the collapse of the economy has broken all records, foreign exchange reserves fell to a critical level, and superinflyatsiya turned Ukrainians into beggars,” says in his blog, Alexander Okhrimenko.

In such circumstances, continued lending would mean the risk that the IMF never so and return the allocated funds. Therefore, the lending stopped. But, for political reasons, the IMF is now trying to find ways to keep Ukraine in their hands. The change of government in the country gave opportunities for new promises.

What the verdict will expose the Fund to Ukraine by results of work of the mission is not clear. Only the Ukrainian government today expressed confidence that, say, a new tranche in the pocket of the Ukraine, and it will be by the end of June this year.

On the amount, however, there are differences. In early April, Poroshenko after talks with the Vice-President of the USA Joe Biden said that Ukraine can receive the next tranche of 1 billion dollars after the fulfillment of certain conditions. Later in April the Minister of economic development and trade of Ukraine Stepan Kubiv said Kiev expects to receive a tranche of $ 1.7 billion until the end of June. The head of the national Bank of Ukraine is also confident of success: on the website of the NBU in Facebook she said that the regulator has fulfilled all the program requirements for increased funding of the IMF relating to its activities.

But Kubiv, in turn, on Tuesday presented MPs from 14 bills, which the Parliament should adopt without delay to resume cooperation with the IMF. The projects cover a wide range of issues – both tax, and energy, and privatization, and legal.

However, while the optimism of the Ukrainian government share a few. “It is clear that the truth they do not speak for a simple reason – because she’s tough,” – says Alexander Okhrimenko. Really troubled a lot of questions. Ukrainian economist highlights three of the most painful.

First, it is pension reform. “The IMF requires that the government paid only the minimum pension and all allowances – created from a special savings Fund. This, of course, would have improved the situation with the pension Fund deficit, but it takes time, and none of the parties is not ready yet” – says Okhrimenko.

Second, for the IMF an important indicator of net international reserves (excluding IMF money and other creditors). According to Okhrimenko, the IMF originally aimed to increase net international reserves by the end of 2016 to $ 8 billion. But given that now they are only 1.3 billion, it is clear that this “beacon” Kiev failed miserably. IMF compromise and requires at least 4 billion net international reserves by year-end.

Finally, the IMF requires the elimination of the state monopoly in the gas market, the elimination of the state of Naftogaz. “It’s extremely painful requirement for the Ukrainian government. Everyone understands that this is a very profitable business. Today, neither the Prime Minister nor other persons close to the government, is not ready to abandon the trough and rid yourself of the opportunity to earn on the Naftogaz of Ukraine”, – said Okhrimenko.

“There are a number of things that relate to deoligarchization, against which stand a number of oligarchs close to power. As Poroshenko himself will come on your head, it turns out that it needs to create problems to their business and their business partners? It’s one thing to say that I will fight with offshore companies and oligarchs, and another thing to destroy the business that feeds you” – says Okhrimenko.

There are plenty of secondary issues that also need to be addressed. “The situation is difficult and complex, it is necessary to find a compromise, and as it would be for a compromise – not clear”, – concluded the Ukrainian expert.

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