Paradoxical Shortsightedness
IMF plays by the rules of bureaucratic lobbying
Alex Sundakov, former IMF representative to Ukraine, commenting on the
country's economy in an interview with Zerkalo nedeli, admitted
that, given the ongoing budget chaos, even the slight rise of certain individual
indicators cannot halt the general decay. Small wonder, he concluded, because
the only thing that has changed in the corridors of power since Soviet
times is things over which bureaucratic horse-trading takes place. Previously,
professional lobbyists (tolkachi in the language of those days,
which translates loosely as "fixers") specialized in getting materials,
cadre allocations, and funds. Now they concentrate on institutional-financial
instruments in terms of budget subsidies, credits, guarantees, licenses,
quotas, customs and tax concessions, settlement of arrears between enterprises,
government programs and Cabinet resolutions, and presidential edicts. In
other words, the large-scale redistribution of economic resources by the
state, being a major characteristic of socialist economic policy, is still
preserved.
In fact, Mr. Sundakov seems to have overlooked another "fixer" regularly
found in these corridors of power: the International Monetary Fund under
whose attentive, albeit often unseen, eye a host of decisions, good and
otherwise, are made.
Early last week IMF's senior permanent representative to Ukraine Henri
Gesquer declared that Ukraine will receive additional loan installments
"only if the government adopts a number of measures within the next ten
days to improve the situation in the budget, energy, and banking sectors."
In a word, the reader may himself experiment with identifying the lobbyist
during the next two weeks. We are convinced, however, that during this
time the government will do but take measures relating to the three key
sectors: budget, energy, and banking.
On May 8 the IMF mission completed its work in Kyiv, failing to recommend
that the fund provide further EFF installments. Mr. Gesquer said the mission
gives high marks to the National Bank's efforts to liberalize the exchange
market and increasing budget revenues, compared to 1998, noting, however,
that revenues remain below the EFF program indices, whereas budget expenditures
surpass them. The Cabinet has thus violated the wage and pension arrears
redemption schedule agreed upon with the IMF. In the first quarter the
budget return shortage rose by UAH 4 billion (40%), amounting to UAH 13.9
billion as of April 1. Remarkably, experts associate this shortage increase
not with "inveterate" tax evaders, but with unreasonable (in terms of macroeconomic
estimates) government fiscal expectations. In any case, realizing that
the required amount of taxes cannot be collected does not make the situation
any easier for anyone concerned, although for some it will make it even
harder, primarily those who are not in the habit of experiencing inconveniences.
Under Cabinet Resolution No. 764 of May 5, 1999, all checking accounts
containing off-budget funds of the State Tax Administration must be transferred
from commercial banks to the State Treasury. As usual, the new enactment
offers not only a stick but also a carrot: managing these off-budget funds
will be the State Tax Administration's sole prerogative. Moreover, the
tax men are asked not to worry about any unauthorized withdrawal of such
funds at any trying periods for the budget. "Funds transferred to special
STA registration accounts," reads the resolution, "shall not be used for
the redemption of arrears on social payments or for other purposes restricting
STA usage thereof."
A presidential edict signed on May 11 offers a rather original way to
comply with another IMF requirement - reduction of the arrears on wages
and pensions: arrears on housing and municipal payments, gas and electricity,
accumulated by workers of budget-sustained organizations, those of the
Interior Ministry, servicemen, pensioners, and recipients of welfare, as
of April 1 of this year, are to be redeemed by offsetting arrears on wages,
pensions, and social payments, reads the edict. The Cabinet is to adopt
the offsetting procedures within two weeks and the local authorities must
carry them out within two months. As of April 1, back wages at budget-sustained
organizations totaled UAH 967 million plus 2.21 million worth of arrears
on pensions due from the Pension Fund.
Prior to the IMF mission's arrival, the NBU leadership was convinced
that, unlike all the other concerned parties, it would have no problems
reporting on the performance of the IMF memorandum. A week previously,
Viktor Yushchenko stated that "IMF has nothing to blame NBU for." But then
the mission came and corrected that statement. Once the mission was through
with its work NBU "forgot" about its May 1 surprise for all those digging
up incriminating evidence, namely its promise to lower the interest rate.
At present, the per annum refinancing rate is 50%, although getting a loan
from the NBU at this rate is practically impossible, for all credit emission
is used either to buy dollars (an annual average of some UAH 200 million)
or Finance Ministry bonds that no one except NBU needs. The second correction
affects the interests of commercial banks. On March 30, the NBU refused
to comply with a Parliament resolution demanding that every bank's authorized
stock be not less than UAH 4.2 million. In other words, at the time the
National Bank was against the liquidation of 24 banks just because their
statutory funds did not measure up. Yet a month later NBU department director
Viktor Zinchenko promised that the NBU would by May 20 develop an action
plan to enhance capital sufficiency requirements to the banks, as recommended
by the IMF and World Bank, and that NBU considered the UAH 5 million minimum
acceptable. "Today it makes little sense for a bank with less than this
amount to operate," declared Mr. Zinchenko.
Hence, if the Cabinet guidelines are to be implemented within ten days
in the form of certain documents (and it will be quite some time before
one can pass judgment on their effectiveness), and if these documents impress
the IMF, then its mission "will try to do its best to convince its Board
for Directors to consider the Ukrainian issue in late May." And if the
board agrees, Ukraine will be able to receive the April and May tranches
worth some $130 million plus $300 million to cover export losses.
Getting back to Alex Sundakov's comment, one has to admit that he is
right about one major point. The IMF "fixers" will, of course, never call
the tune in the Ukrainian corridors of power. Among other things because
they are making a strategic mistake in telling the government what to do.
Because this government, inspired by this list of "do"s without any of
"don'ts", will end up fully controlled by our homegrown lobbyists.
By Iryna KLYMENKO, The Day






