Publication: Monitor Volume: 4 Issue: 148

The Ukrainian government and a delegation of IMF experts in Kyiv reached on July 31 a preliminary agreement on the conditions for a US$2.2 billion Extended Fund Facility credit program from 1998 to 2001. IMF’s management and its Board of Directors will review the proposed program and make the final decision in the course of August. The conditions that Kyiv must meet include:

–reducing the annual rate of inflation from 12 percent in 1997 to 10 percent in 1998 and to 8 percent annually in 1999-2001;

–reducing the budget deficit from 5.6 percent of GDP in 1997 to 3.3 percent in 1998 and to 2 percent thereafter;

–introducing transparent procedures for privatization and reducing government interference with enterprise activities;

–launching administrative reform and reducing the size of state bureaucracies;

–structural reform of the energy sector and agriculture;

–continuing measures to improve the business and investment climate, and easing tax pressure.

Many of these measures would presumably have to be introduced by presidential decree, in order to obviate expected resistance from the leftist-controlled parliament. The legislature is due to resume work on September 10 after the summer recess.

Outlining the conditions at a news conference in Kyiv, IMF delegation head Mohammed Shadman-Valavi commented that these steps would enable Ukraine to achieve an annual growth rate of 3 percent to 5 percent of GDP by the end of the program period. They would also, he said, help to expand Ukraine’s private sector, curb the shadow economy, increase budget revenue and attract foreign investment.

If approved, the loan may be released in monthly tranches beginning with a US$200-250 million tranche in September. In that case, the threat of a financial crisis in Ukraine would recede. The resumption of IMF lending would in turn allow the implementation of projects that had been planned earlier with the World Bank and the European Bank for Reconstruction and Development. Those projects were stalled after the IMF had withheld and then suspended EEF lending in autumn 1997 and spring 1998 because of Ukraine’s slow pace in reforming the economy. (UNIAN, DINAU and other Ukrainian agencies, AP, July 31, August 1)