Who will be in the government?

The IMF assessment mission arrived in Ukraine on November 11. Negotiations with the government on continuation of cooperation with the Fund and discussion of the current economic situation are the goals of the visit.

“The mission will carry out negotiations with government representatives on the current economic situation, progress in program implementation, and also the policies aimed at support of the macroeconomic and financial stability and restoration of growth,” said IMF Resident Representative in Ukraine Jerome Vacher. He also added that the discussion will not be final and will continue as soon as the new government is formed.

As expected, the mission will stay in Kyiv till November 25 and will prepare a special report based on the result of its work, which will later be reviewed by the IMF Board of Governors. Based on the review, the Board can make a decision to allocate the joint third and fourth credit tranches of 2.7 billion dollars to our country within the framework of implementation of the IMF two-year crediting program for Ukraine’s economy, which was adopted in late April, 2014.

Besides, it was planned that this mission was to ease the demands to Ukraine and pass the so-called wartime cooperation program, which was announced by President Petro Poroshenko.

However, on the eve of the mission’s arrival, Prime Minister Arsenii Yatseniuk made a clear and sensational statement at a meeting with representatives of large companies, members of the European Business Association. According to him, Ukraine will meet all the requirements of the IMF to receive the credit “due to the simple reason that we do not have a choice.”

Yatseniuk noted that this applies to reforms in the social sector, as well as to increasing the tariffs. And this involves, firstly, raising the retirement age by two years for men and by three, for women. To nullify the right for early retirement and the principle to count one year of service record as two in hazardous industries. And secondly, cancelling the institute of special pension allowance for scholars, state officials, and directors of state enterprises; limiting pensions of working retirees; establishing retirement age for army officers at 60 years. Thirdly, raising the gas prices for municipal enterprises by half and doubling it for private consumers; increasing the electricity tariff by 40 percent; allowing utility companies to establish their own prices; allowing the growth of prices according to the rise of gas prices; increasing the excise on petrol by 60 euros. Fourthly, cancelling benefits and raising transport taxes by half; freezing the living wage, balancing social situation by point subsidies. Fifthly, privatizing all mines and cancelling all subsidies; cancelling benefits for utility companies, transport, and others; cancelling state support of childbirth, free school meals, and textbooks. Next, limiting the practice of simplified taxation; cancelling the practice of VAT privileges in rural areas; imposing VAT on pharmacies and pharmacists. And finally, cancelling the moratorium on the sale of agricultural land and cancelling subsidies for pork and chicken producers.

The Day’s experts say that with this statement the prime minister has virtually admitted his helplessness. Though the situation is critical indeed, the prime minister has better options than to force the country to its knees before the IMF. Read about them in the comments below.

“THE FLIGHT OF CAPITAL FROM THE COUNTRY MUST BE STOPPED”

Bohdan DANYLYSHYN, former economy minister:

“Involvement of the EU and IMF credits is an important step not only on the path of stabilization and averting the threat of default, it will also promote the implementation of reforms in the country. The IMF issues credits if specific requirements are met, among which can be the implementation of painful and unpopular reforms. The government’s program foresees the adherence to the IMF and EU demands, which is definitely a positive signal.

“However, the government leaders should not say they will fulfill all the IMF demands. If it happens, this will not be a Ukrainian government, but that of the International Monetary Fund.

“The government has an option of surviving without the IMF money. Shadow economy, which reaches 60 percent according to various assessments, must be eliminated, and the flight of capital from the country must be stopped.”

“THE ISSUE OF WRITING OFF A PART OF THE NATIONAL DEBT MUST BE RAISED”

Andrii NOVAK, chairman, Committee of Economists of Ukraine:

“The current situation in the country is such that without cooperation with the IMF Ukraine will not even be able to close the year. We need funds both for replenishing the NBU reserves of gold and currency and for implementing the budget.

“However it must be noted that the expansion of Ukraine’s cooperation with the IMF sends a message across to other investors and creditors: you can do business with this country. In the Western world the IMF is a sort of litmus when it is necessary to decide a question of cooperation with another state.

“On the other hand, the national government cannot declare that it would absolutely follow all the IMF requirements. For then a question arises: if so, why do we have the national government? Why not appoint an IMF outfit to run the country?

“The IMF has its own tasks which we are obliged to fulfill in part, as we borrow their money. First of all they are interested in our solvency, so that we could be able to pay back the loan. On its part, Ukraine, just like any other state, should be interested in economic progress: the growth of revenues of domestic enterprises, the growth of household incomes, all of this as a complex.

“Cooperation with Western partners has always been a matter of negotiation and compromise. In the West they do not dictate their opinion to anyone. It all depends on the negotiators’ skills. So, in the cooperation with the IMF, each nation should stand its grounds instead of just fully accepting all of the Fund’s terms and conditions. If this happens, moreover, if this is publicly announced, it can mean two things. First, it is a sign of the negotiating group’s weakness.

“Second, of an extremely dire financial situation which is kept secret from society. But even in such a case there are other variants than just publicly acknowledging one’s total helplessness. Now and then in comments I reiterate my thesis that Ukraine should raise the question of writing off a part of its debt before international creditors citing the economic, military, and political situation. Yet I see that all my calls remain futile. The government will not do it because after such a step (which will clearly benefit the country by lifting the debt burden off it) new money will not flow in. There will be no new billions of dollars coming which could be harnessed while the government could imitate their proper allocation.

“That is why the question of writing off the national debt is never even considered. Meanwhile, not only the economic, but also military and political situation in Ukraine is so bad that this must be the last chance to raise the question. And now an ideal way out would be to ensure the writing off of the larger part of the debt. At least, in such a way the civilized world could partly compensate its failure to defend Ukraine from aggression. And this moment must be used.”