Publication: Monitor Volume: 4 Issue: 203

On October 29 the IMF approved disbursement of the US$78 million second tranche of the US$2.2 billion Extended Fund Facility (EFF) loan to Ukraine. This was less than the US$125 million Kyiv initially expected. The decision to disperse this tranche had itself been postponed from October 26: The IMF–which has to be duly cautious, given the exhaustion of its own funds and the fiasco with the pre-crisis US$20 billion EFF loan to Russia–waited for Ukraine to restructure its US$100 million debt to Chase Manhattan. This restructuring was eventually successful.

Current developments in Ukraine justify IMF’s prudence. Meeting with heads of city councils on October 29, President Kuchma described printing money as a possible exit from the economic hardships. Kuchma added that if the elderly do not get pensions, they may vote for a communist candidate in the upcoming presidential elections. He called at the same time for renegotiation of the IMF loan conditions (Ukrainian television, Russian and Ukrainian agencies, October 30). Curbing money emission was one of the main conditions the IMF set before Ukraine. The following day, however, the impulsive Ukrainian president explained that he had been misunderstood. He did not mean, he said, that Ukraine would resort to printing money to pay pensions. By this Kuchma probably also implied that Ukraine’s strict monetary policies will be continued (Ukrainian television, October 31).

Another IMF condition was a low budget deficit. Here the Ukrainian cabinet slightly overdid it–setting the projected deficit at a record low of 0.6 percent of the GDP in the draft 1999 budget, which was submitted to parliament on October 23. Such opposing figures as the leftist leaders in parliament, the chair of the parliament’s budget committee, one of the Hromada leaders Yulia Tymoshenko, and the former vice premier and renown liberal reformer Viktor Pynzenyk, were unanimous in their skepticism about the proposed deficit. Pynzenyk called the draft budget “the most unrealistic of all” (Ukrainian STB television, October 31). The cabinet will have to compromise with parliament on the budget issue to avoid the 1997 predicament–when the budget wasn’t approved until the summer and international financial institutions therefore froze their cooperation with Ukraine.

Ukraine is now rather optimistic about this cooperation (between Ukraine and lending organizations). It is waiting for another tranche of some US$70 million, this time from the World Bank, as Kuchma’s economic adviser Valery Lytvytsky announced in the wake of Thursday’s IMF decision (Fakty i kommentarii, October 31). Over the last week the Ukrainian currency, after two-and-a-half months of a steady slide downward, strengthened against the dollar–with the rate fixed at 3.475 hryvnyas to the U.S. dollar in trading at the Interbank Currency Exchange on October 30. For the first time since early September it was possible to buy dollars freely at currency exchange booths in Kyiv.–OV