Publication: Monitor Volume: 5 Issue: 13

Speaking in Kyiv on January 19, Mohammed Shadman-Valavi, head of the International Monetary Fund’s Second European Department, described Ukraine’s economic situation as critical and said that its prospects for getting foreign loans are rather bleak. “No one now,” he said, “will give Ukraine additional money.” He recalled that in recent years Ukraine has borrowed extensively both at home and abroad, but failed to apply the loans to real reforms while “taxing the population more heavily than any other country of the former USSR.” Shadman-Valavi warned that if Ukraine does not immediately take “extraordinary measures” to reform its economy and government–and does not simultaneously cut back on its borrowing–it will face hyperinflation (Ukrainian agencies and television, January 19).

Shadman-Valavi arrived in Kyiv on January 17, heading the IMF mission to monitor Ukraine’s fulfillment of IMF qualifications for the next tranches of a US$2.2 billion Extended Fund Facility (EFF) loan. The IMF disbursed the first two tranches (some US$335 million) last autumn but suspended further allocation pending improvement in tax collection, structural reforms and the adoption of a reasonable budget for 1999. On December 31 Ukraine’s parliament approved the budget with a 1 percent deficit. The IMF had requested a deficit of no higher than 2 percent, to include clearing old arrears. Many domestic and foreign experts believe that this budget, especially in its expenditure element, is too optimistic.

Ukraine’s take on its economic performance, however, is at least realistic. On January 18 Deputy Premier for the Economy Serhy Tyhypko said that the country has met only forty-five of the eighty-eight IMF requirements. Premier Valery Pustovoytenko admitted that the country has failed to meet its IMF obligations, blaming the leftist-dominated parliament for its reluctance to approve vital economic legislation and cooperate with the government. This casting of blame is only partially true: The cabinet has failed both to reorganize and to meet several other obligations which involve deregulating and privatizing state enterprises. Shadman-Valavi pointed to the apparent inability of Pustovoytenko’s cabinet to work productively with the parliament, in which it has no majority (Ukrainian media, January 18-19).

Shadman-Valavi had said in an interview with STV that his mission will adopt a decision on the EFF no earlier than the end of this week (STV, January 17). If the IMF freezes its loans, Ukraine may face a steep devaluation of the national currency, the hryvnya, and default on its foreign debts. With the October 1999 presidential elections around the corner, and immediate political considerations coming to the fore, decisive actions in the economy are scarcely feasible, and unpopular economic decisions virtually impossible. –OV