IMF representative assures Ukraine on loan program (11/15/98)

IMF representative assures Ukraine on loan program

by Pavel Politiuk

KYIV - International Monetary Fund representative John Odling-Smee said on November 4 after his meeting with Ukrainian President Leonid Kuchma there will be no changes in Ukraine's $2.2 billion, three-year Extended Fund Facility (EFF) program in the near future.

The same day, the National Bank of Ukraine said it had received the latest tranche of $78 million from the IMF, after the financial organization's board of director's approved the second installment of the EFF, which is being paid in monthly installments subject to progress on economic and political reform. Together with the September tranche Ukraine has thus far received $335 million from the IMF.

But the country must continue to meet stringent conditions, including currency reserve and quarterly budget deficit targets, to be eligible for further payments.

In the last week the Ukrainian government, including President Kuchma, had proposed that some IMF stipulations should be relaxed and that Ukraine may need an emission of hryvni to pay long-delayed back wages and pensions.

Ukraine is struggling with the effects of the lingering financial turmoil in Russia, Ukraine's largest trading partner, which has helped push the hryvnia down to 3.43 against the dollar.

Large wage and pension debts, estimated at more than 6 billion hrv ($1.75 billion) along with a 6.2 percent jump in inflation in October has put Ukraine in a position in which it may not be able to maintain IMF conditions that it keep the budget deficit and inflation in check.

On October 29 President Kuchma said the EFF program is good for an economically and financially stable Ukraine, but that Kyiv needs adjustments in the program's conditions because of changes in the international and domestic economy.

"We will talk with the IMF mission about softening the program that we have now," President Kuchma told reporters, "and that, of course, means some kind of emissionary measures, but which must not under any circumstances stimulate inflationary processes."

Mr. Odling-Smee said after his meeting with President Kuchma on November 4 that Ukraine's leaders did not say anything about printing money as one way to overcome Ukraine's current financial difficulties.

"No, there is no question about printing money in Ukraine," Mr. Odling-Smee told journalists. "It would be a very bad thing to do, and I am sure the president has no intention of allowing that."

Valerii Lytvytskyi, economic advisor to President Kuchma, said after the meeting that the issue of monetary emission was raised at lower levels during the IMF's weeklong stay in Kyiv, but that the chances of issuing money are slim.

"The issue of printing money cannot be taken on its own, it is not the central problem," Mr. Lytvytskyi said. "The central theme of the talks was the effort Ukraine needs to make to speed up structural, especially fiscal, reform."

The presidential advisor also said that Mr. Odling-Smee gave a positive evaluation of Ukraine's move to speed up structural reform in the privatization and budget sectors. "They made positive comments on Ukraine's work with foreign investors and creditors ... and the more or less successful external debt conversion program," said Mr. Lytvytskyi. He added that the stabilization of the currency market was praised.

Ukraine, which a week ago ceased devaluating the hryvnia versus the dollar, is now interested in reviving the currency trading market and banking activity in the country of 50.9 million.

The IMF and the National Bank of Ukraine (NBU) are weighing the possibility of cutting the refinancing rate. The vice-chairman of the central bank, Volodymyr Bondar, told journalists on November 3 that the NBU may cut the refinancing rate from its current 82 percent if it was is conditions on the foreign exchange market are favorable.

Mr. Bondar also said the NBU is planning to use a large part of the planned issue of new money for 1999 - about 900 million hrv ($236 million) - to stimulate commercial bank lending, which would in turn allow a cut in interest rates.

However, the plan depends on the Verkhovna Rada's approval of the 1999 budget, which sets the budget deficit at 0.6 percent of the gross domestic product. Opposition deputies who initiated an unsuccessful no-confidence vote in the government last month, have threatened to dilute key provisions of the bill, which could potentially wreak havoc with the overall budget.

Ukrainian national deputies decided on November 3 to pass a final budget by December 23.

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