Ukraine close to signing second IMF deal

13/05/2010 | Simon Pirani

The IMF and Ukraine are working on plans for a second loan programme, its deputy prime minister has told Emerging Markets

The IMF and Ukraine are working on plans for a second loan programme

covering the period up to 2012, Sergii Tigipko, the deputy prime minister who heads Ukraine’s negotiating team, said yesterday.

The Ukrainian side has asked for a $19 billion package, but Tigipko told Emerging Markets “there is no final decision yet” on the sum. Issues under discussion with an IMF mission currently in Kiev include “confirmation from our side” of the revenue side of the budget, where improvements in the work of tax and customs authorities are proposed, and the expenditure side.

He said the finances of Naftogaz Ukrainy, the state oil and gas company, were a key focus. Under its first loan programme – launched in the aftermath of the Wall Street meltdown in September 2008 – the IMF had, unusually, acknowledged Naftogaz’s operational deficit of around $3 billion as part of the national consolidated budget deficit.

The economic agreement made last month with Russia – which included a 30% discount on gas sales in return for a 25-year extension on the lease of the Black Sea naval base, and collaboration in the atomic and aerospace sectors – is profitable for Ukraine “from the economic standpoint”, Tigipko said.

However he acknowledged that these agreements had been concluded “quickly, and were not public enough”. He added: “It was absolutely necessary to change our relations with Russia, which [before the presidential election] were completely unconstructive. Russia is our biggest trading partner, and size of foreign trade with countries of CIS (Commonwealth of Independent States) is bigger even that the EU.”

Tigipko added: “We had to amend the agreements on gas imports concluded last year by [former prime minister] Yulia Timoshenko.” Tigipko said a programme of structural reforms was under discussion with Fund officials.

But the government – in which Tigipko and other reformers have joined a

team dominated by president Viktor Yanukovich’s Party of Regions – was accused of shying away from the harsh decisions needed to balance the budget.

Viktor Pynzenyk, Ukraine’s former finance minister, accused Mykola Azarov’s government of continuing the policies of a hidden budget deficit and “social populism” started under Timoshenko.

“I don’t see any fundamental difference between the financial policies of this government and the previous government”, Pynzenyk told Emerging Markets. “These people are not reacting to the problems. They are continuing with the policy of social populism.”

Pynzenyk is sceptical that the government can achieve the target set by the IMF for this year of a 6% consolidated budget deficit. He estimates that the consolidated public deficit was 12% of GDP last year, and will be 16% of GDP this year.

On social policy, Pynzenyk said, “pensions and [public sector] wages are increased. So there is no reason to think that expenditure will be reduced. To think the deficit will be reduced is unreal.

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