An Unenviable Stroke of Fortune

IMF mission head Muhammed Shadman-Valavi hastened to calm any trepidation, saying that this intermediary stage of negotiations does not mean the end of the IMF mission's work in Ukraine. "We have agreed to suspend discussion for a few days and then resume it," said he. The government seems to have to be content with what little it has. "The talks were successful for Ukraine. As of today, I see no problems and think we can hope for positive recommendations of the mission to be submitted to the IMF Board of Governors," said Natalia Nesterenko, chief of the Cabinet of Ministers department for relations with international financial organizations.

The Ukrainian News Agency quotes an informed government source as saying that next week Ukrainian representatives, including National Bank Governor Viktor Yushchenko, Deputy Premier Serhiy Tyhypko, and perhaps the Prime Minister, will meet IMF and World Bank officials in Washington, DC. The source specified that the visit is aimed at a final discussion of the results of the extended financing facility (EFF) program for the past few months as well as of the conditions for the program's continuation. Should the mission make positive recommendations, the IMF Board of Governors may decide later in February to issue the EFF installments for November, December, and January totaling about $230 million.

It should be noted that behavioral motives of the borrower (the Ukrainian government and the National Bank) are more transparent than the creditor's in this endless negotiating process. There is a category of eternally unlucky borrowers who still contrive each time to persuade a sponsor (note, not creditor) to believe them one last time and give them money. Strange but true is that the five years of absence of the serious reforms, which the West has every reason to consider it has paid for, still has not brought home to the mission members the illusory nature of assurances "to correct everything rapidly, in a matter of two weeks." And should one really trust the Prime Minister that the government is on the point of "carrying out the structural, including administrative, reform," so indispensable for continuing the EFF program? In other words, this is a promise to do something not only the government but President and Verkhovna Rada lack the political will to do.

Meanwhile, one thing forces the IMF to do precisely what our domestic pseudo-reformers expect. It was noticed that the fund never undertakes actions capable of provoking an immediate financial collapse. Yes, the fund might postpone a decision, thus blackmailing the inconsistent politicians. It may insist on something, promising certain compromises, but it will never be openly push a country into financial chaos. It something else entirely if such chaos happens anyway (the government's first endurance test will come because of its accepted a "currency thaw" under IMF pressure). This is a case where Western partners will show an all too firm capitalist pragmatism. In fact, the current strategy of Ukraine's political leadership boils down to one simple tactic: let's hold out a day or two, and then suck out everything we can.