First reforms, then money

Ukraine continues to bargain for integration into Europe. Prime Minister Mykola Azarov said the other day that the European Union is expected to provide 20 billion euros in aid to this country. Earlier, the First Vice-Premier Serhii Arbuzov had spoken about 10 billion dollars to keep up the balance of payments.

Meanwhile, the European Commissioner for Enlargement and European Neighborhood Policy, Stefan Fuele, has announced concessions in this question. He emphasized that the EU was prepared to assist and support Ukraine in its modernization drive by means of IMF loans and by activating the EU financial aid program after the agreement has been implemented.

The US also promises to help Ukraine offset economic losses if it integrates into Europe. “Many products of Ukraine are eligible for duty-free entry into the United States under the Generalized System of Preferences,” says US State Department Spokesperson Jennifer Psaki. But the program she disclosed is so far on paper only, for it is still to be approved by Congress. Besides, the US and Ukraine are going to trade by the World Trade Organization’s rules.

The main creditor – the International Monetary Fund – is also signaling readiness for a dialogue. “The IMF is ready to offer support for Ukraine if the country implements the needed reforms, in particular those relating to its national currency and the price of energy,” stated IMF Managing Director Christine Lagarde. Will they give Ukraine the next standby installment? This may be decided on December 16 at an IMF Board of Governors session.

“If we are given favorable conditions, we will follow this way. But we have always been relying on ourselves only,” Yanukovych says again, as if it were a mantra.

Yet, “incantations” alone will hardly solve the problem of economic stabilization in this country. Ukrainian financial troubles are felt far beyond this country.

If Ukraine does not ride out the political crisis in the near future and does not take urgent measures in the economic field, it may face a default in three-four weeks’ time, said Jose Ignacio Salafranca, European People’s Party member of the European Parliament, during a visit of a top-level MEP delegation to Ukraine.

So Ukraine’s major financial partners are ready – in public – to help. But it still remains a question whether this will result in direct financial infusions and, if so, when and under what conditions. The Day has polled some experts on this.

“THE INTERNATIONAL COMMUNITY WILL GIVE MONEY WHEN A NEW GOVERNMENT IS INSTALLED”

Volodymyr LANOVY, former minister of economics; President, Center of Market Reforms:

“EU, US and IMF statements signal the beginning of cooperation with Ukraine. But this does not mean they will begin to send us funds tomorrow night. This will be preceded by the discussion of a plan of actions, reforms, and various strategies of financial aid, including extension of previously allotted resources and reduced pressure on the state budget by way of public debt repayment. But I strongly doubt that this financial cooperation will be possible with the Yanukovych regime. I do not know what the Europeans and Americans are thinking, but we can presume that they will first wait for a concrete plan of political crisis settlement, dismissal of the current government, and a new strategy of Ukraine’s economic development. Ukraine will receive no financial aid unless it ‘resets’ its portfolio-distribution, institutional, and financial mechanisms. The international community will give money when a new government is installed. Besides, the lenders will, in all probability, be setting conditions about the mechanism of the distribution and utilization of this money, formation of the budget, export stimulation, and the excessive use of Russian gas. In other words, they will want to see budgetary finances balanced so that public debts do not rise. For you can receive even 20 billion dollars in aid but, at the same time, run into a 30-billion-dollar debt. Should there be a roundtable with the participation of Europeans and representatives of various international institutions, reduced powers of the president may also be one of the demands. He is authorized now to dismiss certain ministers. He must be deprived of this right, which should be stipulated in a joint agreement. For, after a new compromise government has been formed, the head of state will be able to easily dismiss the ministers who fail to follow his instructions.

“Nor is the international community exactly rushing to spend billions to bail Ukraine out, for everybody still remembers 2004, when multibillion amounts were being transferred abroad in anticipation of a change of power. Therefore, nobody wants to shell out billions of dollars which will run away to some exotic islands tomorrow.

“For this reason, what is needed is a joint action plan which will clearly show the destination of funds and the amounts requited for each item – then it will be a dialogue of arguments with the West, the US, and the IMF. If there is no progress, there may be all kinds of economic pressure and blockade.”

“INTERNATIONAL ORGANIZATIONS WILL GIVE MONEY NO MATTER WHO CHAIRS THE CABINET”

Oleh USTENKO, Executive Director, Bleyzer Foundation in Ukraine:

“I believe Ukraine will finally receive aid. The international community will give Ukraine a leg up and help keep the country stable. But nobody will give money upfront – be it the US, the IMF, or Europe. The money will come after Ukraine fulfills the conditions that will prevent this money from being eaten up in the budget. Particularly, it will be logical for Ukraine to cut this year’s deficit of 5.5 percent GDP to 3.5 percent GDP in 2014 and to settle the situation in Naftohaz and the Pension Fund. In other words, the main conditions for Ukraine to obtain financial aid are as follows: resolution of the political conflict, a realistic 2014 budget, and a more flexible exchange rate formation. What is more, international organizations allocate money irrespective of who chairs the Cabinet. For it is common knowledge that the substitution bench of all the political parties is in fact empty. By all accounts, it makes no difference to creditors who heads the Cabinet. What really matters to them is to see concrete actions to improve the economic situation. This will break the ice and bring along the international financial aid. I do not think it is realistic to receive the money before the end of the year. It is quite realistic to receive, say, an IMF loan in March 2014. But the very fact that the Fund has publicly announced the resumption of a dialogue on cooperation is also a positive thing. The renewed cooperation will reduce demand for hard currency inside the country and, hence, ease the likely pressure on the hryvnia. This will pave the way for EU funding.”