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Analysts say IMF money won’t help Ukraine out of debt pit; peace will

March 13, 2015, 15:43 UTC+3 Zamyatina Tamara

MOSCOW, March 13. /TASS/. The five-billion-dollar tranche of the IMF’s loan disbursed to Ukraine will be just enough to keep the economy going for a short while, but it will surely fail to help Ukraine out of the financial abyss, polled financial analysts have told TASS.

On Thursday, Ukraine received the first five-billion IMF loan tranche. In all, Kiev is to receive $10 billion this year, the chief of the IMF’s mission in Ukraine, Nikolai Georgiyev, said.

Ukrainian Prime Minister Arseniy Yatsenyuk warned that the IMF money was not meant for social programs, and that about $2.7 billion from the first tranche would be spent to support the budget. Ukrainian Finance Minister Natalie Jaresko has confirmed the IMF loan will be used to replenish the gold and foreign exchange reserves and pay the foreign debt.

Says Vladimir Andrianov, the director of strategic analysis and research at Vneshekonombank: "The people of Ukraine will feel absolutely no effects. Moreover, under the government’s decision the loan is to be accompanied by a sharp rise in electric power and heating prices, which is an outspokenly anti-social measure. Ukrainian tycoons will surely pocket part of the money. IMF specialists say for a good reason that Ukraine has a bad history of implementing agreed programs and the authorities’ fine wishes often run against the interests of different groups of influence. There is absolutely no hope for a reform of the Ukrainian economy."

"The authorities in Kiev will spend the IMF money on financing the army, on purchasing military hardware, and in the final count on continuing the war in the east of Ukraine," Andrianov told TASS. Also, Kiev will have to settle the debt for Russian gas, and by the end of the year, the 3-billion-dollar debt on Russian eurobonds. In a word, the five billion dollars extended to Kiev and even the $17.5 billion promised over the four years to come is a meager amount, surely unable to help Ukraine out of the financial abyss," Andrianov said.

"Until just recently the IMF had refrained from giving a loan to Ukraine on the excuse of the continuing hostilities. But nevertheless the decision was made, although Kiev is in no hurry to comply with the Minsk Accords to pull back heavy weapons away from the line of disengagement. The IMF never grants loans to countries involved in ongoing military operations. This is evidence the loan was extended to Kiev under US pressures to spite Russia," Andrianov remarked.

An analyst at the Alpari company, Anna Kokoreva, believes that the IMF loan gives Kiev a chance to reschedule the existing $15-billion debts. But who of the lenders will agree to a rescheduling of Ukraine’s debts? This year Kiev is to give away $11 billion. Russia and the IMF may agree to a rescheduling arrangement. But such a decision might follow only prolonged and no easy negotiations with each of the lenders."

Deutsche Bank’s chief economist for Russia, Yaroslav Lissovolik agrees.

"It remains to be seen, though, if the IMF’s loan is sufficient for resolving Ukraine’s financial problems? The country has a huge budget imbalance. The economy has collapsed over the past year. And although the loan will give more room for maneuver, the bulk of the money will be spent on foreign debt settlements. True, the IMF’s program for Ukraine might help Kiev draw more financial donors and more loans, but it is a vicious circle," Lissovolik told TASS.

"Amid financial instability and the economic slump one can hardly expect successful reforms or social programs. But the more the reforms are postponed, the harder they will be to accomplish," Lissovolik said.

Finally, an opinion from the chairman of Vneshtorgbank’s observer council, Sergey Dubinin. No external financing will be able to substitute for structural measures to upgrade the economy, for which Ukraine over five coming years will need an estimated $40-50 billion , Dubinin told TASS.

"But if the authorities in Kiev fail to cope with the IMF’s terms, they will not get the $17.5 billion promised for the next four years. Upgrading the Ukrainian economy would be possible only on the condition of a stop to the political crisis and to the armed conflict in the east. The current state of affairs as it is, Ukraine cannot hope for more loans. Kiev’s top task now should be to comply with the Minsk Accords. Otherwise, a default will be the imminent outcome," Dubinin said.


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