World Bank and IMF praise Ukraine's economic improvement, promise loans (06/02/02)

World Bank and IMF praise Ukraine's economic improvement, promise loans

by Maryna Makhnonos
Special to The Ukrainian Weekly

KYIV - Two missions from the World Bank and the International Monetary Fund, on working visits to Ukraine's capital this week, praised the Ukrainian economy for relative stability and gave hopes for loans worth $800 million this year.

Speaking at a news conference on May 21, World Bank Vice-President Johannes Linn praised Ukraine's progress on reforms and exceptional financial growth during the last two years despite worldwide economic troubles.

"The fact that during a worldwide economic recession ... Ukraine has grown at the rates it has grown is extraordinarily encouraging and quite exceptional by world standards," Mr. Linn told journalists.

Ukraine's economic growth was 9 percent last year, and 4.1 percent in January-April compared to the same period of last year. The government forecasts that the GDP will reach 6 percent in the next two years.

World Bank experts predict further economic growth of 4 percent to 6 percent for 2002 due to improvements in agriculture and Ukrainian exports' access to world markets. The IMF has predicted growth of about 5 percent in 2002.

Mr. Linn praised Ukraine for "remarkable progress" in payments of pension and wage arrears, land reform, improvements in the business environment and more transparent privatization.

However, he expressed concern over Ukraine's poor fiscal performance, called for more effective tax collection, restructuring of the state savings bank, and further reforms in the energy sector.

"The World Bank doesn't give us impossible tasks," Economy Minister Oleksander Shlapak said on May 21. "It is about ability to tackle tax arrears."

Government spokesman Serhii Nahornianskyi said on May 20 that the World Bank mission is expected to propose that the bank's board of directors release a loan to Ukraine in one $250 million installment instead of dividing it into separate tranches this fall.

"The mission's main conclusion is that Ukrainian economic improvements are stable and serious," Mr. Nahornianskyi said after Mr. Linn's meeting with Prime Minister Anatolii Kinakh.

Besides meetings with top government officials and President Leonid Kuchma, the World Bank team on May 21 unveiled the $288,000 Dialogue for Reform project aimed at strengthening cooperation between the government and the public sector.

Before departing on May 22, Mr. Linn also visited the Khmelnytskyi region, 350 kilometers (215 miles) southeast of Kyiv, to review pilot social projects sponsored by the bank.

Meanwhile, the IMF mission said on May 22 that it may propose to the fund's managerial meeting in July that it provide Ukraine a $550 million loan.

The loan decision may be positive if Ukraine reaches its budget targets and pays off value-added-tax arrears to companies.

The loan is the last disbursement of the IMF's 1998 lending program, which ends this year. Before the talks started, Mr. Kinakh said on May 16 that the loan is not the government's top priority, because the economy is stable. He said his government seeks a new relationship with the IMF that is not based on loans, but on equal partnership.

Relying on Ukrainian stable economic policy, the mission said that the IMF is going to continue cooperation with Ukraine regardless of its government team.

The IMF halted its $ 2.6 billion lending program in 1999 due to slow reforms, but resumed lending late in 2000 after the reformist government of former central banker Viktor Yushchenko came to power. The World Bank, which coordinates its policy with the IMF, has loaned more than $3 billion to Ukraine since 1992.

The parliament dismissed Mr. Yushchenko in 2001, criticizing his policies. Mr. Kinakh pledged to continue reforms, but despite economic improvements at a macro level, many Ukrainians continue to live below the poverty line with an average wage of a meager $62 per month and lower pensions.

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