Publication: Monitor Volume: 5 Issue: 83

The Ukrainian government–with its empty coffers, stalled domestic investment and debts on international obligations and wages and pensions mounting–urgently needs external financing now, particularly with the presidential elections around the corner. The cabinet of Premier Valery Pustovoytenko hopes that the International Monetary Fund (IMF) mission, which arrived in Kyiv on April 27 to revise the Extended Fund Facility (EFF) program, will recommend that the IMF board disburse the next EFF tranche–some US$150 million–to Ukraine. The mission members will work until May 8 analyzing several issues on which the disbursement depends. First, fulfillment of the state budget. Second, the situation on the foreign currency market after the National Bank of Ukraine liberalized it on request from the IMF. Third, the state of the energy market.

Following recent revelations about corruption in the energy sector, President Leonid Kuchma ordered Pustovoytenko to revoke his earlier decision to allow the Ukrainian Credit Bank to temporarily manage three energy distribution companies (Ukrainian agencies, April 27-28; see the Monitor, April 22). Meanwhile, Ukrainian Deputy Premier Serhy Tyhypko announced that the IMF will extend an additional US$200-700 million to Ukraine either by increasing the EFF or by opening a new loan program to compensate for Ukraine’s losses on exports to Russia (STV, April 28). Local exporters suffered multimillion-dollar losses due to the economic crisis and sharp devaluation of the ruble in Russia, which remains Ukraine’s main trade partner.

The IMF approved the US$2.2 billion EFF loan to Ukraine last year but suspended the program in the autumn due to Kyiv’s failure to meet IMF demands on speeding up economic reforms. In April, the IMF unfroze the EFF and disbursed almost US$500 million to Ukraine. Despite the National Bank’s managing to prevent both the national currency and the banking system from collapsing after the world financial crisis last year, reforms in the economy are still very slow. It is widely believed in Ukraine that the IMF continues to finance the current government–which is considered market-oriented despite its flaws and its failure to meet several Fund conditions–in order to prevent the “reds” (who capitalize on economic hardships) from winning the elections in October.–OV