Goodbye to the Old IMF
As soon as Ukraine was resolutely refused further EFF tranches by the IMF mission inspecting this country’s compliance with the EFF program requirements, the Ukrainian fiscal authorities proceeded to replenish their deficit of resources. While pointing to an unprecedented amount of borrowing last week — about UAH 1.2 — experts seem hard put to predict the consequences.
In fact, the Cabinet also looks concerned. Last Friday, Finance Minister Ihor Mitiukov made it clear the government is looking for ways to step up the process of making a positive decision on loans for Ukraine. He noted, in part, that when holding talks with IMF officials Kyiv will try to convince its business partners not to make the IMF allocation or withholding of further EFF tranches dependent on the findings of the second round of NBU audit. Mr. Mitiukov stated that the talks he had at the IMF headquarters on April 15-17 show that both sides agreed that the NBU’s first audit findings must be made public knowledge, the sooner the better. “This must be done in the next couple of days; at present, the auditors are working on the final text, preparing the report for publication,” he said. He further stressed that the second round of the audit could continue “for quite some time,” meaning that a decision resuming EFF tranches should be based solely on the steps being actually made by the Cabinet and Verkhovna Rada in carrying out the economic reform. The reader should recall that the PriceWaterhouseCoopers preliminary audit findings show no irregularities in the handling of IMF funds.
What money the Cabinet managed to borrow last week will most likely be converted into US dollars, using NBU reserves, because after restructuring the public debt in February payments will have to be made without delay. And such payments include ones to be made to IMF and World Bank in the first place ($1.1 billion). Here no protraction is usually tolerated.
If and when the EFF program is unblocked, Ukraine will hope not only to cover its debts by further borrowing, but will also try to negotiate restructuring in its liabilities to the Paris Club, meaning governments, including Russia. Interestingly, while crediting Ukraine, Russia is also one of the world’s leading debtors and a most interested party in negotiating their write-off. Early this year, the London Club (private investors) agreed to write off over 30% of the former USSR’s debts. Currently, according to Russian Finance Minister Viktor Kasianov, Russia expects to talk the Paris Club into restructuring its debt on terms similar to those of the London Club arrangement. The Financial Times wrote on April 24 that the IMF does not think the Paris Club should write off part of Russia’s debt inherited from the Soviet Union, simply because it does not seem warranted.
Should Russia succeed in playing out its scenario, convincing the Paris Club to write off part of the debt, Ukraine would be obliged to take advantage of the situation and try to reduce the amount of its national debt. However, chances in both cases are slim. Germany, Russia’s number-one creditor as a member of the Paris Club, insists that Russia does not conform to the criteria for a write-off. The same applies to Ukraine after having its commercial liabilities restructured. In addition, one ought to remember the rejuvenated IMF’s opinion, strongly discouraging any further light-minded attitude toward debts. This new stand is an important factor. The old IMF epoch is history, along with Michel Camdessus, Boris Yeltsin, 1997-98 financial crises, and complete or disguised eurobond defaults sustained by certain countries.
The old IMF symbol is a story recounted by Joseph Stiglitz, former chief economist at the World Bank on the eve of the IMF- WB April session. It comes down to this: IMF experts copied a reform program developed by country N and gave a copy to country L’s ruling officials, but then something went wrong with L-country’s computer network, so that the resultant document showed the name of N, rather than that of L. Oops! Mr. Stiglitz summed up. Trust my word, he added, I have worked for the universities of Oxford, Stanford, Yale, and Massachusetts. Never, not once has the fund recruited better students! And so the IMF-WB spring session, even without offering any revolutionizing solutions, left the participants with the impression that everything had been arranged and now everybody was pretending nothing had changed, simply because no one wanted any drastic moves.
Will Ukraine have the time to grab something from the old Fund’s table or will have to cope with the new one?
