IMF stalls on new tranche of stand-by loan (04/05/98)

IMF stalls on new tranche of stand-by loan

by Pavel Politiuk
Special to The Ukrainian Weekly

KYIV - An International Monetary Fund mission left Kyiv on March 14 without approving a new $50 million tranche of the stand-by loan launched last August, saying that Ukraine's government had not fulfilled several conditions of the program and in the last two months had not maintained financial indicators as had been agreed.

President Leonid Kuchma has ordered the government to tackle the shortcoming that prompted the delay of the latest installment of the $542 million loan, said presidential economic advisor Valerii Litvitski.

"Today the problems are found in the financial situation - the implementation of a mechanism to manage spending and the revival of the bond market," Mr. Litvitsky said.

The fund said the government must determine how it will keep spending down this year and work harder to revive its struggling treasury bill market, Mr. Litvitskyi explained.

Last year President Kuchma signed a decree to cut the state's budget deficit from 3.3 percent to 2.5 persent in 1998, saying that the achievement could help Ukraine receive more foreign credits and loans.

Ukraine's economic reform program, launched by President Kuchma in 1994, has been slow to take hold, and the cash-strapped country has lately resorted to borrowing on international markets after foreign investors stopped buying its domestic debt.

After the IMF mission left, President Kuchma summoned ministers responsible for the economy and "assigned them the task of resolving the problems," said Mr. Litvitskyi. He said the IMF review of Ukraine's progress would resume next month.

"We hope that the April mission will allow Ukraine to receive the tranches that we have not received, Mr. Litvitsky said. "This is our only route, and the government must pursue it."

Ukraine has already lost two tranches that were scheduled for disbursement in January and February, estimated at more than $100 million, which Ukraine had expected to cover spending from the state budget.

Ukraine's officials expect that the most recent postponement does not mean a halt to the stand-by program in general, but it does indicate that Ukraine must continue to work carefully to limit and cut spending.

In Warsaw, Ukraine's Vice Prime Minister Serhii Tyhypko said his country and the IMF were working out a financing program and hoped to have it finished this month. He did not provide details.

The IMF approved the stand-by loan arrangement last summer after rejecting a $2.5 billion, three-year loan because of stalled structural reforms, which have yet to be implemented.

Government official have said they hope to win approval for the larger loan later this year. President Kuchma has pledged to improve the economy before presidential elections in 1999. Ukrainian authorities all agree the country has to significantly strengthen its budget and structural reform program.

As if confirming the slow pace of economic reforms, the World Bank also announced this week that it would postpone two loans totaling $200 million. Bank officials said the money was withheld because of similar concerns on the movement of economic reforms.

Western financial institutions also are concerned about the situation in Ukraine's treasury market, which has been slow to come out of a serious financial crisis that occurred last November.

Ukraine is scheduled to spend about $4 million on treasury bill redemptions this year.

Alarmed by tremors on the international financial markets, foreign buyers stopped buying treasury bills last year and have been slow to return, leaving Ukraine with little money to support its hryvnia.