IMF Sees Ukraine Coming Close to Renewal of Rescue Package

The IMF's representative in Ukraine,Max Alier,has said that the country is edging closer to a renewal of the $16US.4-billion loan deal which was first struck in November 2008. The original deal was halted as the IMF withheld payment of the second tranche on 15 February,citing an unrealistic fiscal budget plan for 2009 and persistent tensions among Ukraine's leading political authorities,especially between Prime Minister Yulia Tymoshenko and President Viktor Yushchenko. Alier noted that there was significant progress in terms of cooperation between the two during the last two weeks,which could make a more comprehensive approach to combatting the current economic and financial crisis in the country possible. However,while the budget issue is still unresolved,as a supplementary budget has not been drafted yet,Ukraine's parliament has at least scrapped legislation restricting the central bank's independence which had been included in the budget law for 2009. According to that,the National Bank of Ukraine would have been obliged to purchase treasury papers within three days after issuance and would also have been obliged to follow government instruction on setting interest rates and conduct refinancing operations. Moreover,Tymoshenko said yesterday that a motion will be submitted to parliament by the end of the week abolishing a 13%-import duty on imported goods,which parliament had adopted in February in what was a blatant violation of Ukraine's agreements with the WTO.

Significance:Ukraine is inching toward a renewal of the IMF deal. Alier's remarks may be regarded more as an encouragement for Ukraine's leaders to deepen collaboration rather than an outright signal that the transfer of the second tranche is already close. However,scrapping recent legislation restricting central bank's independence and import duties are important steps toward that goal,and these need to be complemented with a more realistic budget plan for 2009. Unless the IMF is convinced that Ukraine's leaders are finally cooperating and adopting a comprehensive anti-crisis strategy though,a renewal of the deal could still be postponed further.

Source:Global Insight