IMF says there are risks involved in quick repayment of debts
Ukraine’s number one banker Serhiy Tihipko is prepared to repay all public debts to the International Monetary Fund, yet the creditor appears to have adopted a cautious attitude toward his enthusiasm. Lorenzo Figluoli, head of the IMF representation in Kyiv, warned recently, saying that, should such repayments be made immediately, the result would have a negative effect on monetary policy and the National Bank of Ukraine would then have to buy a considerable amount of foreign currency, which it would not be able to sell quickly. This, in turn, would cause the money supply and monetary basis to increase, followed by higher inflation.
Mr. Figluoli further stated that the IMF mission to arrive in Kyiv at the beginning of October would negotiate such early repayments with the Ukrainian side at greater depth. He noted that special attention would be paid to the observance of adequate Ukrainian imports, international reserve criteria (as reserves adequate to cover three months of imports are regarded as a minimum), and monetary stability, if and when such early repayments would be agreed upon. In his words, keeping inflation under control, while making early repayments to the IMF, could secure the adequacy of the National Bank’s reserves and a balanced monetary policy. He stressed that properly managing the macroeconomic process was the only way to improve the Ukrainian investment climate.
Meanwhile, the NBU Council held a meeting on Wednesday and decided to adjourn a resolution on such early repayments to IMF to October 31. NBU Council Chairman Anatoly Halchynsky moved to set up a task force to study all aspects of the issue and work out a final position. Apart from Halchynsky, the task force includes Tihipko, Alioshyn, Horbal, Poroshenko, Osyka, and Sharov. Anatoly Halchynsky feels sure that he will be able to keep the dialog absolutely transparent. When asked about the reasons for studying the issue at such greater length, he told The Day, “We proceed from the fact that this is a complicated issue with pros and cons. It requires an extremely well thought-out approach, relying on estimates of the balance of payment, currency reserve dynamics, and so forth. We further proceed from the assumption that reliable NBU reserves are the basis of a stable national currency, and that these reserves are part of our nation’s wealth. Therefore, the issue cannot be resolved unilaterally, even by the Board of the National Bank. It must be carefully studied by the NBU council representing positions of Verkhovna Rada and the president.”
Mr. Halchynsky considers it improper to foretell the NBU Council’s resolution on the last day of October: “Personally, I think that this matter requires thorough consideration. I believe that the decision [on early repayments of IMF debts — Ed.] is thus far a rash one.” Whether the NBU Board will find sufficient arguments to support Serhiy Tihipko’s stand or whether the NBU Council’s common sense will prevail remains to be seen. Anatoly Halchynsky says that the current currency reserves are not “excessive,” which dictates a cautious approach to their reductions. Earlier he stated that the gross currency reserve would be $7-7.5 million toward the end of the year, and that it could not be regarded as sufficient for the Ukrainian economy. By way of example, he noted that such gross currency reserves in Poland were $28.6 billion in late 2002; $23.7 billion in the Czech Republic; $10.3 billion in Hungary, while in Russia the amount had reached $64.3 billion. In addition, the Chairman of the NBU Council believes that one ought to take into account the possibility of a worsening foreign market situation for the Ukrainian economy, and that this would have a negative effect on the balance of payments and prospects of replenishing Ukraine’s currency reserves.
