The December 22 appointment of National Bank of Ukraine (NBU) Chairman Viktor Yushchenko leaves Kyiv facing the task of passing its 2000 budget in order to finalize its agreement with the IMF for a US$2.6 billion Extended Fund Facility (EFF).
Ukraine’s presidential elections, followed by problems in setting up the new government, prevented the finalizing of an agreement on the resumption of the IMF lending to Kyiv. An IMF mission visited Kyiv in mid-December to discuss progress on structural reform. But the political and administrative flux following President Kuchma’s re-election, and particularly the Verkhovna Rada’s rejection of former Prime Minister Valery Pustovoytenko’s bid to continue in his position, prevented the completion of the talks. Yushchenko’s appointment should accelerate negotiations with the IMF. The new prime minister, who served as NBU chairman during 1992-1999, has extensive experience in dealing with international financial institutions. His reformist and liberal approach to economic policy should also win him many supporters in Washington and in the international financial community, which had tired of Pustovoytenko’s passive approach to reform.
An IMF mission is slated to return to Kyiv in January, and by that time the Fund expects the government to have completed work in a number of areas. Adoption of the 2000 budget is first among these. Although the Pustovoytenko government’s initial draft budget assumed a budget surplus of 0.4 percent of GDP, this draft was withdrawn in the face of parliamentary opposition after its first reading. According to Ukrainian Finance Minister Ihor Mityukov, the revised draft budget still shows a surplus. But while the Rada’s finance committee has accepted the need for a balanced budget in 2000, it expects spending and revenues to be increased by at least 50 percent. As in past years, parliamentary discussion of the 2000 budget in the parliament is likely to be prolonged and difficult.
The resumption of IMF financing is extremely important, because Ukraine must make close to US$1 billion in debt service payments during the first quarter of 2000. As is the case in Russia, IMF lending will only be used to cover Kyiv’s obligations to the Fund in 2000. But Ukraine would be very hard pressed to cover its debts both to the IMF and other creditors without fresh money from the Fund. Even so, Kyiv may have to undertake serious negotiations with creditors on restructuring of some of its debt in 2000.
NBU TO TIGHTEN CURRENCY CONTROLS TO REDUCE VOLATILITY OF HRYVNYA.