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Ukraine needs… politically clean money

What or who will the government have to sacrifice for this?
05 February, 10:33
Sketch by Anatolii KAZANSKY from The Day’s archive, 1997

The end of January again caused concern about Ukraine’s nearest future. According to the State Statistics Committee, the gross domestic product of this country grew by a mere 0.2 percent in 2012. But is this really so terrible? Even 2 percent is within the limits of a statistical error, and here it is dozens of times less. Max Alier, IMF Resident Representative in Ukraine, believes, aptly enough, that our country has sharply increased the need in domestic crediting. “The decision on rendering assistance to Ukraine will depend on the economic situation in the country and on whether the Ukrainian government will meet our demands in the economic field,” the IMF representative emphasized.

Meanwhile, the Ukrainian government has less and less time left at its disposal – the International Monetary Fund mission is going to leave Ukraine in a week’s time. Have the IMF emissaries come to any conclusions? Are there at least the outlines of any results of this visit for Ukraine? These questions so far remain unanswered. Yet Andriy Honcharuk, advisor to the President of Ukraine, chief of the Presidential Administration’s Main Department for International Relations, notes very cautiously: “We will expect this work to produce some positive results.” On his part, Ihor Prasolov, Minister for Economic Development, had told journalists earlier that the current IMF mission was not even going to make a decision. “The mission’s main objective at the moment is to study the situation in Ukraine,” the minister said.

Nevertheless, experts believe that it is most important for the IMF to make Ukraine accept its three main demands made as long ago as November 2012. They include reforming Naftogaz Ukrainy, including introduction of economically sound gas and public utility charges, changing the currency exchange rate policy, and reducing the public finances deficit. “The IMF demands are tough, but this is what we must do one way or another,” Ihor Burakovsky, director of the Institute of Economic Research and Political Consultations, says. “It is for the sake of our own selves, not for the sake of money. The IMF conditions are, in essence, a list of the reforms Ukraine should have carried out long ago.”

But, as is known, the Ukrainian authorities are taking a specific view of reforms, which often focuses on, above all, political expediency. Did Washington not know all the details of this from the IMF Kyiv representation’s reports? For example, when it comes to raising household gas prices, the government first of all takes into account that this may aggravate the already difficult sociopolitical situation in the country practically on the eve of presidential elections. And here we must give the IMF leadership its due: they seem to be aware that partners can and must vary their positions in the course of negotiations. This is what is in fact going on now. While earlier, especially before the parliamentary elections, official Kyiv did not even want to hear about raising public utility charges, now, with due account of the economic situation which is more and more heading for recession, it is noticeably easing up on its unflinching stand. For example, Ukraine’s Foreign Minister Leonid Kozhara told The Wall Street Journal later last January that the government of Ukraine was prepared to raise gas charges for some consumers. The minister hinted that this might help remove one of the main obstacles to Ukraine signing a memorandum with the IMF.

But can even this solution create problems for the Mykola Azarov government which may be held responsible for making an unpopular decision? The Cabinet is more and more coming under sharp criticism. For instance, Ihor Shumylo, ex-director of the General Economic Department of the National Bank of Ukraine, thinks that the government tends to be “playing down to the low-income strata, as far as gas, electricity, housing and utility charges, and social benefits are concerned. For it is crystal clear that going on to rob the poor (practically the majority of the population), while a small bunch of cronies is being enriched at a crazy pace, may result in a social explosion. At the same time, the state machine is absolutely unprepared for making radical changes in social policies and redistributing the tens of billions of hryvnias that sank in the Naftogaz abyss allegedly in favor of the unprotected strata of the population.” He is convinced that the authorities are only prepared to sacrifice “the interests of ordinary people and ‘alien’ business groups” rather than their own business interests. He presumes that the government is in for difficult negotiations with the IMF and a still more difficult debate within the ruling team.

Volodymyr Fesenko, head of the Penta Center for Applied Political Research, notes that any choice of the Ukrainian authorities will result in losses – the absence of IMF funding will raise the risk of a debt crisis, while the presence of this funding will fetch a lower political rating to the government. “It is possible to borrow from the Russians,” the expert muses, “but this will mean, perhaps not directly and not immediately but undoubtedly, losing, at least partially, the economic and, probably after some time, the political sovereignty. Russia is most likely to play on our difficult financial condition… The financial and economic weakening of Ukraine is in Russia’s interests.”

A good illustration to his opinion is a recent statement of Viktor Medvedchuk, ex-chief of President Kuchma’s staff. Noting that the Ukrainian government is pinning great hopes on success in the IMF negotiations, the politician, well known by his connections with the Russian leadership, says that the Ukrainian economic situation is close to a crisis. Therefore, receiving new IMF loans seems, at first glance, to be a way out of the deadlock because the Fund gives credits on favorable conditions. At the same time, Medvedchuk forecasts that Ukraine will have to pay dearly for the supposedly low interest rate. He claims that the IMF will offer Ukraine no fresh recipes – it will only strictly limit budgetary, especially social, expenditures and will further demand raising household gas and public utility charges.

Yet the vast majority of experts agree that Ukraine has no alternative but to try to have cooperation with the IMF resumed. Vasyl Yurchyshyn, economic program manager at the Razumkov Center, is convinced that “full-fledged cooperation with the IMF, including funding, is a minimal requirement for revival.”

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