Sequestering No Obstacle to Borrowing

Ukraine’s Ministry of Finance is conducting talks with Credit Suisse First Boston (CSFB) about giving a $300-350 million loan to cover the budget imbalance, Vice Premier Yuliya Tymoshenko announced last Monday at a meeting devoted to the problems of payments for energy resources that CSFB is expected to grant the Ministry of Finance a loan to cover the budget funds spent to finance the privileges and subsidies for utility charges paid by the population.

In its turn, the ministry will forward the borrowed money (on a repayment basis) to electricity companies so that they can purchase natural gas. Ms. Tymoshenko thinks that the loaned funds will be enough for the power companies to pay 50% of the cost of gas they will need during the coming fall and winter. According to the vice premier, to ensure trouble-free functioning of the energy system, Ukraine must purchase 7.5 billion cubic meters of gas before the end of the year. It is planned to buy this amount from the Itera International Energy Corporation at a price of $45 for 1000 cu. m. The Ukrainian government intends to conclude a contract to this effect as soon as “today or tomorrow,” Ms. Tymoshenko said.

Meanwhile, the current positive balance of Ukraine’s consolidated budget, calculated along IMF lines, was UAH 440 million as of August 28, while in late July it was only UAH 88 million. The growing positive balance was caused by the increase of funds in governmental accounts: they have risen by UAH 430 million since early August, exceeding UAH 2850 million by August 22, while at the beginning of this year this indicator showed about UAH 1050 million, Interfax- Ukraine reports. Simultaneonsly, governmental disbursements as part of paying off principle on the foreign debt came to UAH 961 million in January to August. Treasury bill and privatization returns remain the main sources for financing the deficit. But this seems to be deficient and, in the year- long absence of foreign funding, the government is forced to hold negotiations on a commercial loan.

The Day’s expert, deputy chairman of the Union of Ukrainian Taxpayers and president of the Pulsar Corporation Oleksandr Narbut interprets this operation as a guarantee that the budget offers for the CSFB credit to power-generating companies within the limits of the funds the same budget must earmark for financing the privileges and subsidies granted to the population. According to Mr. Narbut, a scheme like this is quite acceptable and is not connected with the current positive balance of the budget caused by the underfunding of some expenditure items in the budget, because the government fears to face a current budgetary deficit in case the IMF resumes its financing program. In the words of Mr. Narbut, the government is now drawing up the new version of a truncated budget, i.e., its sequester, in the light of possible failure to receive IMF money. The desire to keep Ukrainians from having to tighten their belts all the way up to their necks with winter coming on in fact brought forth the idea of a CSFB credit. Mr. Narbut thinks any parallels can be drawn here because all the revenue items of the budget make up an indivisible structure which does not envision any target-oriented distribution. In his opinion, the new loan, in fact aimed at offsetting the shortage of fuel in the fall and winter, will only sweep the problem under the rug because it is supposed to solve the current problems at the expense of future income. A step like this, Mr. Narbut thinks, will make sense only if it is accompanied by improved payment for energy resources. But, the expert says, the main thing is what the loan will cost. The very fact of its nondisclosure raises some doubts, for it is clear that funds received from a commercial structure will cost this country much more than it could borrow them from international financial organizations.

According to Mr. Narbut, this credit cannot be cheaper than any commercial borrowings Ukraine resorts to. Since rating agencies did not revise our credit ratings, nobody will loan the money at an interest less than 25-30%, he believes. Thus, the loan will cost three or four times as much as IMF credits. Yet, this can entail any kind of agreements. For example, the Ministry of Finance has discussed the possibility of issuing so-called privatization bonds which might lay the basis of the system of borrowing. In this case, the loan price will be significantly higher, Narbut opines.

INCIDENTALLY

Iryna Bezverkha, spokesperson for the Ministry of Finance, declined to answer The Day’s question about the interest at which CSFB might issue the loan. According to her, the ministry’s policy is to reveal the conditions of a loan only after the relevant documents have been signed. She also preferred not to answer question on whether the interest will be higher or lower than that on IMF loans or the loan’s term.