IMF CANCELS STANDBY CREDIT FOR UKRAINE…

Despite recording exceptionally low inflation and some indicators of accelerating economic growth, Ukraine will not receive the remainder of the $542 million stand-by IMF credit agreed upon with the Fund last year. While not wholly unexpected, the IMF decision is likely to exacerbate Ukraine’s problems, and could undo much of the progress Kyiv has made with macroeconomic stabilization during the past two years.

The suspension of IMF funding was announced in Kyiv on April 9 by Deputy Prime Minister Serhiy Tyhypko. (Eastern Economist Daily, April 10) According to Tyhypko, the decision was precipitated by the fact that the government budget deficit during the first quarter of 1998 reached 1.4 billion hryvnya ($667 million), more than double the 650 million hryvnya figure agreed upon with the IMF. While President Leonid Kuchma announced on that day that he will submit a revised budget with a lower deficit during his state of the union address in May, (Russian agencies, April 10) the relatively weak showing of reform parties in last month’s parliamentary elections would seem to preclude a fiscal correction of the scale necessary to satisfy the IMF’s fiscal concerns. The outcome is that Ukraine will receive only $253 million — less than half — of the $542 million stand-by credit.

Although Ukraine’s fiscal performance can be criticized on many grounds, inflation during the first quarter of 1998 was only 1.7 percent — a figure that translates into a yearly rate of 7.0 percent. This is below Ukraine’s 10 percent inflation rate recorded last year, and compares favorably with Russia’s inflation rate during the first quarter. Moreover, Ukraine has managed to resist currency speculators and keep the hryvnya relatively stable even though (in contrast to Russia) Kyiv’s foreign exchange reserves have not been replenished by IMF credits this year. And though Ukraine does not show signs of a robust economic recovery, industrial production at the end of February was 3.0 percent above year-earlier levels, and large increases in metallurgical and energy output were noted in the first quarter. (UNIAN Biznes, April 7; UNIAN, March 13) But while Ukraine’s economic performance in many respects does not deviate significantly from Russia’s, the IMF finds that it is often easier to punish Ukraine, rather than Russia, for fiscal profligacy.

…and Forces Government to Quadruple 1998 T-Bill Emission.