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Ukraine hopes to reach understanding on gas prices with IMF mission

October 25, 2011, 18:07 UTC+3

Ukraine hopes to reach understanding on the issue of raising gas prices for the population at negotiations with a mission from the International Monetary Fund

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KIEV, October 25 (Itar-Tass) —— Ukraine hopes to reach understanding on the issue of raising gas prices for the population at negotiations with a mission from the International Monetary Fund (IMF), Ukrainian Prime Minister Nikolai Azarov said on Tuesday.

“Ukraine is fulfilling all its obligations to the International Monetary Fund as its creditor. But still there are certain limits. If we think it possible not to raise gas prices for the population, why should the IMF demand we do that. We are oriented at other gas prices,” he told journalists.

According to the Ukrainian prime minister, it will take not more than a month to reach agreements with Russia on the revision of gas prices.

“If the IMF partners do not agree with us, we shall think twice whether we need such loans. We do not need loans at any terms. We need them on such terms that would allow our economy to develop further,” he stressed.

Talks with the IMF mission are not expected to be easy, but “we hope to reach understanding with the International Monetary Fund,” he said.

According to earlier reports, a mission of the International Monetary Fund (IMF) has arrived in the Ukrainian capital Kiev for talks on a new tranche to the country within the stand-by programme.

Meanwhile, the press secretary to the Ukrainian head of government, Vitaly Lukyanenko, told journalists that the IMF mission has begun to inspect how Ukraine is fulfilling a cooperation program. “They are working with those ministries and agencies that are responsible for fulfilling the program’s parameters, such as the ministry of finance, the ministry of fuel and energy, the ministry of housing and public utilities, and the ministry of economics,” he said.

After the visit is over, the mission will either recommend or not the IMF board of directors to revise the stand-by program and extend another tranche to Ukraine. Meanwhile the Ukrainian government plans to receive two tranches 1.5 billion U.S. dollars each by the yearend. The money will go to the reserves of the National Bank of Ukraine, the cabinet of ministers say.

Ukraine needs an IMF loan primarily to support its national currency unit, the hryvna. It has a trade balance deficit and high demand for foreign currencies to pay for Russian gas. In the past month, Ukraine’s gold and foreign currency reserves have shrunk by more than three billion U.S. dollars.

In September 2010, IMF Resident Representative in Ukraine Max Alier listed a number of requirements Ukraine had to comply with to be granted a new tranche. These requirements included a pension reform, higher gas prices, as well as compliance with fiscal targets for 2011 and 2012. Another IMF requirement was that the National Bank of Ukraine should stop buying bank bonds. The requirement was met back in June.

Until recently, Ukraine’s authorities had reassured the country could easily do without IMF loans. However a threat of a new wave of the global economic crisis forced Kiev to change its stance. In early September, the Verkhovna Rada, or national parliament, finally passed a pension reform law and brought the retirement age up from 55 to 60 years for women. Another key IMF requirement, i.e. to raise gas prices for the population, has not yet been met.

Ukraine’s Deputy Prime Minister and Minister of Social Policy Sergei Tigipko said in early October that the government would not raise gas tariffs for the population but few days after, at the 10th international economic forum on October 14, he said the mere fact of talks with the International Monetary Fund indicate that tariffs for public utilities services would go up by 32 percent.

In July 2010, the International Monetary Fund decided to resume cooperation with Ukraine to adopt a stand-by program for Ukraine worth 16 billion U.S. dollars. The 30-months program aimed to support government efforts to reform the Ukrainian economy. The annual interest rate under the program was 3.5 percent. Shortly after the cooperation program was adopted, Kiev received the first tranche of 1.89 billion U.S. dollars. In December 2010, the IMF agreed to disburse a second stand-by tranche of approximately 1.6 billion. In March, however, its mission in Kiev did not recommend its board of directors to take a positive decision on the disbursement the next tranche to Ukraine. The Fund spelled out a number of requirements and stopped financing. Now Ukraine hopes to combine two tranches to an overall amount of three billion U.S. dollars before the end of 2011.

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