IMF findings in Ukraine

The current IMF mission headed by Ceyla Pazarbasioglu has likely eclipsed all the others — on its submission the IMF has, for the first time in its history, provided money to Ukraine not only to stabilize its currency exchange rate but also to fill the budget holes. The opposition in Ukraine qualifies this step as financing Prime Minister Yulia Tymoshenko’s electioneering program.

However, the IMF is not aware of this. Caroline Atkinson, Director of the IMF’s External Relations Department, rejected the accusations, telling journalists in Washington: “As you know, the IMF provides money to the central bank, where adequate supervision and control are in place.”

In this connection the Party of Regions published specific figures: “The second tranche of the IMF credit to the amount of USD 1,505,399,200 (an equivalent of 11.529 billion hryvnias) has arrived at the government’s account in the Treasury. It serves the purpose of making up for the lacking resources in the state budget until May 12, 2009. The third IMF tranche to the amount USD 3,293,059,400 (an equivalent of 25.35 billion hryvnias) landed on the same account of the government for the same purpose.” In this way, Party of Regions spokesmen say, the total amount of the two tranches that were received by the government by Aug. 1, 2009 was 44.3 percent of the state budget’s receipts. Let me add that rebuttals have not been voiced until now.”

On October 25, the IMF mission to Ukraine made a statement based on its work in Kyiv in October 2009. The statement says that the mission came to Kyiv to review the government’s program, which is being implemented with IMF support in the framework of the stand-by agreement. Here, the mission says, nearly everything is in order: “The mission has discovered that the economic and financial situation in Ukraine has been stabilized as a result of the economic policy and strategy that have been implemented in accordance with the program.”

The IMF experts believe that what needs to be done in order to build on these achievements is to “secure disciplined implementation of the policy and take corrective measures in certain directions.” “In the context of discussions with representatives of the Ministry of Finance and the National Bank of Ukraine, the IMF mission has achieved an agreement on the level of technical specialists regarding such measures and has left Kyiv,” says the statement.

The only thing that worried the IMF mission in Ukraine was the so-called law on social standards. The reaction to this law is expressed in the conclusion of the statement where it says that the IMF is now waiting for the president, prime minister, the Minister of Finance, and the head of the National Bank to support a consensus package of economic measures. The IMF also wants the president to guarantee his veto on the law that raises salaries and pensions and was passed by the Verkhovna Rada this week, because it is at variance with the financial goals of the Ukrainian government’s program.

What has eclipsed for the IMF mission members other real threats Ukraine’s economy is faced with? Two days before the IMF statement was made public, Oleksandr Shlapak, representative of the president in the Cabinet of Ministers, warned of them: “Now we have this problem: in …three months the national budget and the Pension Fund budget have to procure an incredible amount of resources from who knows what sources. In other words, we are on the verge of a budget collapse. …Payments to local communities and administrators of local budget funds are either blocked or delayed, i.e., the government and the Treasury have used the money intended for local budgets to finance the deficit of the state budget. The branches of the Treasury in oblasts and raions are swamped with payment request from local government bodies that are not being met for lack of funds.”

Shlapak also criticizes the government for indiscreetly issuing state guarantees: “Ukraine is still making payments on state guarantees made without any control to private corporations in the late 1990s — over 15 billion hryvnias in debt. …Today the government’s actions lead essentially to a fourfold increase in this debt, because the payments made on these guarantees are directed not into infrastructure projects but primarily into social payments that are by definition impossible to retrieve.”

Shlapak also said that the Cabinet of Ministers passed a resolution to issue guarantees worth 52 billion hryvnias for a variety of projects: “The instrument of state guarantees has turned into another shadow — let me emphasize — shadow budget. …The government has created an absolutely uncontrollable financial monster, which is a threat to our budget system.”