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Western money not to save Ukraine from default

July 10, 2014, 17:13 UTC+3 Alexandrova Lyudmila
Managing Director of the International Monetary Fund (IMF) Christine Lagarde

Managing Director of the International Monetary Fund (IMF) Christine Lagarde

© EPA/MICHAEL REYNOLDS

MOSCOW, July 10. /ITAR-TASS/. Amid the southeastern Ukraine havoc, the economic situation in the troubled country has paled into insignificance. Meanwhile, Kiev will have to restore the economy from the ashes while financial aid from the International Monetary Fund (IMF) and other Western financial institutions is not to save Ukraine from default, experts say.

The European Union and Kiev have agreed to work out a growth and recovery plan for 2014-2016 but the meeting of donors in Brussels did not specify the volumes of additional aid for Ukraine. The latter seeks to get the necessary funds in the IMF and the EU but aid is conditional on implementation of numerous requirements, which experts believe will push the Ukrainian economy to a collapse.

The measures on the table are to increase the age for pension eligibility, abolish the right to early retirement reduce pensions for employed pensioners, introduce pension age for serving officers at 60 years, hike coal price 50% for municipal companies and twice for private consumers, increase electricity tariff 40% and gasoline excise by 60 euro, cancel preferences and raise transport taxes 50%

“The IMF has already allotted Ukraine a tranche, which seems strange,” Deputy Dean of the Faculty of World Economy and International Affairs at the Higher School of Economics Andrei Suzdaltsev told ITAR-TASS. “The country is going through a civil war, while providing aid to a country amid political instability contravenes the IMF charter.”

Ukraine had already received about $7.5 billion from the IMF, US and EU, and a second tranche was highly important for the country, the expert said. But even this money will not suffice to prevent a default, Suzdaltsev believes.

“Default is inevitably approaching, it can happen in September or October, even if Ukraine fails to pay for the Russian gas like now,” he said.

Meanwhile, the IMF preconditions for lending will be unbearable for Ukraine, experts say.

The worst of them is the economically feasible electricity and gas tariffs, believes Head of the Ukrainian branch of the Center for Political Technologies, Georgy Chizhov.

“Both Azarov’s government and the incumbent by all means resisted this option. Despite some tariff growth, the tariffs are still far from the economically justified levels,” he told the ITAR-TASS political analysis center.

“The government understands that if the tariffs are hiked, half of Ukraine will just fail to pay for the utilities,” he added.

Suzdaltsev expects negative consequences but no disturbances.

The IMF set of requirements, namely social spending cuts and closing of inefficient facilities and privatization, is a standard, so Ukraine is no exception, believes Director of the research department at Alpari group, Alexander Razuvaev.

“It is clear about privatization - it will be carried out for next to nothing in the interests of the oligarchs from the government’s entourage, and foreign companies,” the expert believes. “As for inefficient companies, it is hard to believe that Ukrainian producers will withstand competition with the European ones, at the same time losing the Russian sales market. So many of them will face artificial dissolution.”

Razuvaev expects a serious unemployment rise. “They say it will grow by 3-4 million. By my estimates, it will be one or two million, which is still quite much. The people will go to work to Russia and, if possible, to Europe,” he said.

“There is a risk that we’ll see a picture familiar to that in Russia in the 90s, when wages and pensions for public sector workers were not paid for months — formally, the obligations were implemented but payments were frozen. Ukraine can launch the printing press - again, the liabilities will be formally implemented but purchasing power will be lower amid inflation,” Razuvaev warns.

Director of the Center for Political Studies at the Financial University under the Russian Government, Pavel Salin, believes the Ukrainian economy is on the brink of collapse and predicts the shutting down of industrial facilities, mainly in Ukraine’s east and southeast, as only one of the consequences.

Another adverse effect of the IMF austerity program is already being outlined, Salin believes — “Ukraine’s gas transportation system will slip into control of Western corporations, obviously, the Anglo-Saxon ones”.

 

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