Publication: Monitor Volume: 5 Issue: 51

Ukraine has reported meeting two of the International Monetary Fund’s (IMF) main requirements to qualify for resumption of the US$2.2 billion Extended Fund Facility (EFF) program. Last week, President Leonid Kuchma launched a reform of the state administration and the Constitutional Court gave a green light to increasing utility tariffs. On March 12, Kuchma signed a decree reducing the cabinet by three ministries–for information, science and technology, and family and youth–trimming the state committees and cutting the staff of government advisers.

Kuchma’s decree was preceded by talks between the government and Paul Siegelbaum, the World Bank (IBRD) director for Belarus and Ukraine. Premier Valery Pustovoytenko had said that his fear of losing control over the economy was a factor in the slow pace of administrative reform. Siegelbaum told Pustovoytenko that Ukraine’s cumbersome government structure, largely inherited from the Soviet era, is the main obstacle to economic reforms. Comparing Ukraine to Belarus, Siegelbaum noted that Ukraine’s problems come rather from “disorganization than from organized opposition to reforms.” Eventually, Siegelbaum grudgingly admitted that the IBRD will not cut its programs in Ukraine, and said that he expects a positive IMF decision on the EFF. The IBRD had earlier threatened cutting assistance to Ukraine due to the leftist-dominated parliament’s refusal to ratify several IBRD loans and grants (Ukrainian agencies and television, March 12-13).

On March 9, Ukraine’s Constitutional Court banned a law adopted by the parliament last year, which had prohibited increasing housing and transport tariffs. The chairman of the Federation of Trade Unions, Oleksandr Stoyan, immediately charged that the verdict was adopted under pressure from the IMF. The Constitutional Court chairman, Ivan Tymchenko, vehemently denied this to journalists the same day. Following the Court’s ruling, the government announced a 20-25 percent increase in utility tariffs effective beginning in April. In doing this, Ukraine formally complies with the relevant IMF requirement. In fact, the tariff hikes will hardly increase the flow of money to the cash-strapped state coffers. Many of the impoverished consumers, not having received wages for months, could not afford to pay even the partially state-subsidized bills (Ukrainian media, March 9-10).

According to official Kyiv, administration reform and full payment of public utilities (hitherto over 20 percent state-subsidized), have been the only two IMF conditions left for Ukraine to fulfill. The government is more coy about serious reforms in energy and agriculture, on which the IMF also insists. Decisive moves in these two sectors are blocked by the powerful gas and agriculture lobbies, who are quite satisfied with the status quo. Ukraine badly needs the EFF tranches to avoid having to default on earlier loans from international financial organizations. Kyiv hopes that the IMF’s board will, later in March, approve disbursement of two EFF tranches totaling some US$150 million (see the Monitor, February 3, 9).–OV