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Will Ukraine get promised IMF aid?

February 13, 2015, 19:10 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Maxim Nikitin

MOSCOW, February 13. /TASS/. The International Monetary Fund has promised financial assistance to Ukraine on condition of harsh reforms, for which the people will have to pay with a steep decline in the standard of living. Far from all analysts believe the promised funds will be provided in the expected amounts and within the established dates. As for whether Ukraine will repay the credit provided by Russia, the issue depends on a political decision, they add.

The Ukrainian authorities and the International Monetary Fund have agreed to launch another Extended Fund Facility arrangement $17.5 billion worth, which is to replace the previous credit line. As the IMF’s Managing Director Christine Lagarde said last Thursday, the combined assistance from the EU, the United States and private investors to Kiev might reach $40 billion over a period of four years.

The four-year Extended Fund Facility ($17.5 billion) is to replace the Stand-By Arrangement, approved at the end of April last year. Of the promised $17 billion the Ukrainian authorities have received only two tranches ($4.6 billion all in all). Then the program was suspended. Over the past months Ukraine’s economic parameters fell well below IMF expectations, so the Fund had to suspend the disbursement of loans and began to revise the agreement. As Lagarde said earlier, when the IMF was still in the process of drafting a loan program for Ukraine, the Fund’s experts were relying on the assumption the military conflict in the southeast of the country would end no later than last autumn.

The new aid program, too, requires economic reforms. It is an ambitious and harsh program fraught with certain risks. But it is a realistic program that may prove a turning point for Ukraine, Lagarde said.

For getting the funds the Ukrainian authorities must freeze rises in pensions and budget-financed wages, improve tax collection, carry out a banking reform and privatization of state-owned assets and raise retail prices of natural gas for households. By April 17 the subsidies to consumers, currently compensating for about half of the gas import price, are to be canceled.

The president of the Ukrainian Analytical Center, Alexander Okhrimenko, is quoted by the daily Nezavisimaya Gazeta as saying the promised $40 billion may never be delivered, while the IMF’s new loan will be just enough to pay Ukraine’s old debts.

"The IMF will provide an amount of money precisely enough for Ukraine to repay the fund’s previous loan and redeem the euro bonds belonging to US funds. But it will not give a dime more. As for other financing sources, there will be nothing like the 40 billion. Most probably it will give about $4 billion a year just to prevent a default. But that’s all," he said.

Repaying the $3 billion that Russia lent Ukraine a year ago is not on the agenda for the time being. Finance Minister Natalya Yaresko has said no specific lenders had been mentioned during the debt settlement plan discussions.

Russia in December 2013 bailed out $3 billion worth of Ukrainian government bonds. The redemption is due on December 20, 2015. Russian Finance Minister Anton Siluanov said earlier this week that Ukraine had asked Russia for a rescheduling of the $3 billion debt, but Russia was unprepared to do that.

The repayment of the loan to Russia is a political issue, says senior lecturer at Russia’s Higher School of Economics, Ivan Rodionov. "Ukraine will pay if the IMF can."

"An utter collapse of the Ukrainian economy has not occurred yet, but the situation is grave," Rodionov said. "The Ukrainian authorities have managed to comply with the IMF terms - for the time being. Social programs are being slashed and tight control is being established over budget spending." Sometimes, in other countries, such measures were successful. If it has money, Ukraine may be able to achieve some results. However, this does not mean that all that will be good for the population."

Rodionov does not believe that Ukraine will find itself in the position of Greece if it gets $40 billion.

"After all Ukraine is a large country. The burden will be heavy, but I see nothing terrible about that," he added.

Regional ratings director at the agency Rus-Rating, Anton Tabakh, an assistant lecturer at the Higher School of Economics, is skeptical about IMF promises. "As far as I know, IMF’s promises should be taken with a handful of salt. Besides, the IMF can make promises only on its own behalf and only to an extent, and not on behalf of others. While the United States will most probably be able to provide what it has promised, the same can hardly be expected of the EU." Tabakh believes that Kiev will be able to get some money, but not as fast and not as much as has been anticipated.

Kiev will have to repay the Russian loan, but it will do so only if it gets money from the IMF.

"If there is no money from the IMF, Ukraine will be looking for an excuse not to pay," he concluded.

 

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