The IMF and Ukraine
Thursday, October 29th, 2009By Daryna Krasnolutska and Kateryna Choursina
Oct. 29 (Bloomberg) — The International Monetary Fund said it may conclude negotiations with Ukraine next week to allow the next installment of the country’s bailout loan.
“I hope the talks will be finalized by the end of next week,” Max Alier, the Washington-based lender’s local representative, said in an interview in Kiev today. If the talks are completed, “Ukraine may get the fourth tranche” of its $16.4 billion loan “sometime in November.”
Ukraine is relying on the loan, approved in November 2008, to avoid a default after the global recession and credit crisis undermined demand for exports such as steel and hammered its banking industry. The IMF program was suspended for three months this year because of government disputes over state spending. The IMF said in July that reducing the budget deficit would be key to releasing the next tranche.
The former Soviet state has so far received $10.6 billion of the credit, 4.6 billion of which was used to help cover Ukraine’s state budget gap, Alier said at a round table discussion with trade unions in Kiev today. The state budget gap may reach between 13 percent and 14 percent of gross domestic product this year, he said.
Changes
Over the weekend, the Washington-based lender said the government needs to endorse several policy decisions, including a veto of the wage and pension law approved by lawmakers, before it gets the fourth chunk of the bailout loan.
Ukraine’s parliament approved the law on Oct. 20, increasing social payments, including the minimum wage, in an effort to win voter support ahead of Jan. 17 general elections.
The economy contracted an annual 17.8 percent in the second quarter, after shrinking 20.3 percent in the three months through March.
The loan program is at “serious risk” of veering off track, Fitch Ratings said on Oct. 14, warning that “policy discipline has eroded.”
Fitch has Ukraine’s long-term foreign and local currency issue default ratings at B, five notches below investment grade, with a negative outlook.
(from www.bloomberg.com)
