No Credit with IMF
In the absence of credible measures to prevent the accumulation of new arrears, efforts to restructure overdue VAT refunds would also lack credibility, the experts conclude. The final statement quite diplomatically handles the prospective early repayment of Ukraine’s debt to the fund, “The mission is encouraged that the government and the NBU intend to proceed cautiously, with the goal of ensuring an appropriate level of international reserves and maintaining prudent macroeconomic policies.”
Commenting to The Day on the IMF mission’s decision, Valery Heyets, director of the Institute of Economic Forecasting under the National Academy of Sciences, said we should construct our relations with the IMF on a loan-free basis only. So the main thing now is to shake off the debt burden as soon as possible. In his words, early repayment of the debt is not of paramount importance, but it is equally right that it is much better to service debts under conditions of economic growth than under those that could emerge in the future. Giving loans to Ukraine, the IMF always attaches strings, including political ones, Mr. Heyets noted. Naturally, the IMF proceeds from its own vision of the situation in Ukraine. For example, the VAT is our domestic problem, and we must address it by ourselves. In Mr. Heyets’s view, IMF loans are not the only way to attract investors, “Our economy is on the rise, although we are taking no loans. This is in fact the best signal for investors.”
A different view on IMF loans was expressed by Oleksandr Baranovsky, expert at the Razumkov Center for Economic and Political Research. He thinks loans indicate the extent of a country’s solvency and are “a beacon for investors.” According to him, one should not claim unreservedly that Ukraine needs no money from international organizations: suffice it to recall that the next year’s budget deficit exceeds UAH 2 billion, and we will not be able to do without foreign borrowings.
Although Ukraine is accustomed to IMF refusals, the current black mark is a bit unexpected, for there was so much optimism at the beginning. Speaking to Mr. Azarov at the initial stage of the visit, mission head Emanuel van der Mensbrugge said Ukraine stood a very good chance to get IMF approval in November. It has been revealed, however, that the IMF experts conducted the final stage of talks without the vice premier and the premier: Mr. Azarov attended the Yalta summit and Viktor Yanukovych was visiting the US. This looks like surrendering without a battle.
Ukraine’s Vice Premier and Minister of Finance Mykola Azarov sounded optimistic when he said on October 10 that the government would do its utmost to encourage the IMF to resume loans to Ukraine. He thus commented on the just-announced results — quite deplorable for Ukraine — of an IMF mission’s visit to Kyiv. The IMF Ukrainian office’s press release says the mission will be unable to recommend that the fund’s Executive Board approve a precautionary standby arrangement with Ukraine. As before, the still unsolved problem of VAT repayment is the stumbling block. Now the fund’s experts say Ukraine can expect a positive decision only on condition that it achieve fundamental progress in refunding the VAT on time as well as in reducing the value and the number of exemptions with respect to the concurrent debt. “These steps are essential to complement a number of structural reforms that have already been enacted and place overall tax policy on a firmer foundation,” the statement reads. “Regrettably, after a substantial net reduction in VAT refund arrears at the end of June, they grew rapidly in August, exceeding the level outstanding at the beginning of the year. The failure to refund the VAT in a timely basis undermines tax compliance and the rule of law, at a significant cost to domestic and foreign investors.
