By new rule

On October 16 the Ukrainian delegation returned from Japan where its members, Minister of Finance Yurii Kolobov and head of the National Bank of Ukraine Serhii Arbuzov, negotiated with the IMF about further credit financing. The main goal of the visit was to continue the current program of cooperation with the IMF in 2013 as it expires in December 2012.

We remind our readers that in 2010 the IMF and the Ukrainian government adopted a stand-by program providing that Ukraine should have received a loan of 15.5 billion dollars by the end of 2012. The Fund allocated two first trenches of 3.4 billion dollars and stopped funding in 2011 since Ukraine refused to increase residential tariffs by 30 percent and by 60 percent for household customers, as it was agreed with the creditor. In 2011-12 visits of the IMF missions to Ukraine ended up in failure.

The resumption of stand-by cooperation with the IMF is important for the economic stability in Ukraine, and the National Bank of Ukraine publicly admitted it. “We urged the government to resume negotiations with the IMF about the cooperation stand-by program. The government has to activate its work, look for compromises or replace some requirements with some other ones. It is very important for our country. This is the cheapest money we can find,” chairman of the board at NBU Ihor Prasolov declared before the visit. According to him, now Ukraine does not need the money of the International Monetary Fund, however, “we are unable to predict further developments on global markets. Just in case we should have a possibility to ask IMF for money.”

The resumption of the dialog is hindered by several factors. One of them is making household tariffs economically justified. IMF representatives are sure that increasing gas and heat tariffs by 20 percent will release 0.2 percent of the Ukrainian GDP and use it for targeted assistance for the poorest strata and the middle class, reports Interfax-Ukraina referring to the conclusions of the report “Ukraine Gas Pricing Policy: Distributional Consequences of Tariff Increases” by IMF. The government has its arguments. The Day asked experts about possible consequences of further credit cooperation between Ukraine and IMF.

Viktor SUSLOV, former minister of economy of Ukraine:

“In December 2012 the current program expires, that is why it is more reasonable to speak about the preparation of a new document and memorandum between the government and IMF, I doubt a lot that IMF agrees to prolong the current program since in 2011-12 the global economic situation changed and the threat of a new crisis aggravated. That is why a new program should be developed. However, we should not forget that today Ukraine does not get the money from the Fund not because of the economic crisis but because it does not meet the requirements of the agreement that was signed. The main obstacle for getting a loan today is the point about increasing residential tariffs, which has not been completed. How can it be done? It is a question without an answer. Though the last prime minister’s declaration concerning that, in case Ukraine joins the Customs Union gas price will be reduced to 160 dollars for 1,000 cubic meters, might be the evidence that the solution has been found. It is up to Ukraine which economic union to join, as IMF is not that much interested in our household tariffs but a balanced budget of the company Naftohaz Ukraina. It is Ukraine’s business how to achieve it. In my opinion, the new program will have the same requirements to refuse pegged exchange, have a minimal budgeted deficit, balance the budget of Naftohaz Ukraina, etc. On the other hand, Ukraine may refuse to cooperate with IMF, however, today it would not be reasonable.”

Volodymyr LANOVY, former minister of economy of Ukraine, president of the Center for Market Reforms:

“Today the Fund is not happy about how the current contract is being executed, that is why it does not give loans. The government understands it perfectly well and is trying to come up with a compromise. However, such compromise is unlikely to happen in the conditions of the current program, which is not being executed. In my opinion, the resumption of cooperation with IMF is not possible earlier than in 2013 when the new agreement is signed. What will its conditions and main provisions be? It is still unclear. They are being developed now. Besides, it is important which term they are going to offer for new loans. If short-term ones, they were needed in 2008. Ukraine can survive without loans but only if existing budget resources are used efficiently.”

Anatolii KINAKH, MP, President of the Ukrainian Union of Manufacturers and Entrepreneurs:

“Ukraine should continue cooperating with the International Monetary Fund and other international financial organizations. At least, it is a positive signal to our partners and potential investors that the economic situation in the country is predictable. That is why in general Ukraine will get more confidence. However, it is very important that the further program meets the state strategic tasks and that the money is used to develop the investment climate, improving the banking sphere and not consumption. So, the program of cooperation with IMF requires refining the monetary policy, increasing protectionism and import substitution programs. The debatable question of gas and household tariffs increase should be solved gradually on condition of applying the system of targeted assistance for the poor. In my opinion, it is more reasonable to reconsider the current cooperation program than to create a new one.”