UKRAINE AND THE IMF: IS THE "HONEYMOON" OVER?

The recent dismissal of Prime Minister Pavlo Lazarenko was largely a response to Western exasperation with President Leonid Kuchma’s failure to take the Ukrainian legislature in hand and forge ahead with economic reform.

Earlier this year the IMF suspended lending to Ukraine pending approval of the 1997 budget. Parliament eventually adopted the budget on June 27, but that action has hardly solved Ukraine’s financial problems. On July 1 the new World Bank Director for Belarus and Ukraine, Paul Sigelbaum, met President Kuchma and reaffirmed that approximately $1 billion in World Bank lending would remain suspended until Ukraine signs an agreement with the IMF. (UNIAN, July 1) Despite upbeat reports of Kuchma’s May visit to the US, it seems that relations between Ukraine and its international reform backers have badly soured and are near the breaking point. Since the resignation of reformist deputy prime minister Viktor Pynzenyk in early April, the West has had no leader it can trust in the economic sphere, and has grown increasingly skeptical of Kuchma’s ability and desire to push through market reform.

Indeed, commentator Oleksandr Makarov has suggested that Ukraine’s "honeymoon" with the IMF is now over. (Zerkalo nedeli, June 27) The two sides still disagree on 14 of the 41 points in the IMF draft memorandum now under negotiation. During a visit to Kiev in early June IMF vice-president Stanley Fisher expressed concern over such issues as an alleged hidden deficit in the draft budget amounting to 1.4 billion hryvnyas ($780 million); Kuchma’s failure to push through increases in rent and utilities; and the parliament’s April law removing special privileges for foreign investors. The one bright spot is monetary policy, which is out of the parliament’s hands and firmly under governmental control. Inflation in the first half of this year was brought down to 5.3 percent. (Financial Times, July 7)

Makarov reports that many Ukrainians feel the US is applying double standards — cutting Russia plenty of slack in its economic policy but not showing the same indulgence towards Ukraine. The basic problem is of course political — that Kuchma is faced by a hostile and powerful parliament, while Boris Yeltsin "solved" that problem by force in October 1993. This is something which the West would presumably not tolerate in Kiev.

Ukraine cannot afford to break its ties with Western financial backers, however. This year Ukraine will have to find an estimated $1.5 billion to meet service payments on its $8.4 billion foreign debt, and will be looking to raise the same amount in new loans from abroad in order to finance its yawning budget deficit. (UNIAN, July 5; Vseukrainskie vedomosti, June 25) Ukraine already failed to make one $75 million payment to Russia which was due in March. International lenders are growing wary: Ukraine is having more trouble preparing placement of Eurobonds than some of Russia’s regions.

Major Multinational Military Exercise Underway in Ukraine.