IMF and World Bank criticize Kyiv for slow pace of reform (12/12/99)

IMF and World Bank criticize Kyiv for slow pace of reform

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Since arriving in early December for their regular reviews, both the International Monetary Fund and the World Bank have severely criticized the pace of reforms in Ukraine, and neither financial organization has given Kyiv any encouraging news that the country is ready for additional credits from them in the near future.

While the separate missions will continue to work in Ukraine for another week, analyzing economic indicators and to what extent the government is adhering to criteria set forth by them, the initial response by the Ukrainian government has been one of acknowledgment and understanding.

"The investment climate in Ukraine is one of the worst in the region," said Lily Chu, the head of the World Bank delegation, at a December 2 press conference.

Ms. Chu said that perhaps only the Belarusian bureaucracy is more difficult for investors to circumvent. She said Ukraine confounds investors with too many licensing regulations, an assortment of bothersome inspections, and a complicated and ever-changing tax system.

The World Bank representative said that thus far she had seen little that makes her optimistic that reforms are proceeding as promised.

The World Bank has set goals for the Ukrainian government that include administrative reform, establishing an investor-friendly business climate and generating $1 billion from the privatization of state assets.

Ms. Chu said that $800 million is available to Ukraine next year, but the country must develop the projects to which the money would be applied.

Meanwhile, John Odling-Smee, the head of the IMF mission, said on December 6 that whether the country gets the next tranche that it now has been awaiting since September depends on how it decides to move on implementation of the reforms that it has promised.

Mr. Odling-Smee said the government needs to revise its role in the economic life of the state, from that of a controlling body to one that promotes economic development. He echoed remarks made by the World Bank, saying that Ukraine must begin administrative reforms, particularly in reorganizing and reducing the number of state committees and ministerial structures.

Ukraine has received $965 million of a total of $2.6 billion promised by the IMF when the country agreed to the Extended Fund Facility (EFF) program in September 1998. However, Ukraine last received a tranche on September 7, in the amount of $184 million. An October tranche was canceled when Kyiv failed to meet a number of financial targets, including a budgetary deficit limit and the foreign currency reserve minimum of the National Bank of Ukraine.

The Kuchma administration is hoping for another $300 million by the end of February 2000, when Ukraine will have substantial outlays on matured short-term treasury notes and international loan re-payments.

Two leading Ukrainian economic officials said the government realizes that its chances for qualifying in December for the next IMF tranche are poor.

"It will be difficult to reach agreement with the IMF because of the decisions contravening the [earlier] accords reached and deviations from the EFF program," admitted Vice Prime Minister Serhii Tyhypko.

Valerii Lytvytskyi, an economic aide to President Kuchma, said that Ukraine had failed to comply with a number of provisions on housing and utilities policies, and energy sector, agro-industrial, privatization and foreign economic activities.

Mr. Tyhypko expressed optimism that Ukraine's problems with the IMF problems can be resolved and the EFF program put back on track through the imminent implementation of radical economic reforms.

While adding that Ukraine will have "to traverse a long way" in order to resolve problems with the World Bank, Mr. Tyhypko said he is confident that, "with favorable developments," Ukraine eventually will receive $850 million from the IMF and about $300 million from the World Bank in 2000.

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