NBU chairman announces Ukraine will repay IMF debt by end of year (09/07/03)

NBU chairman announces Ukraine will repay IMF debt by end of year

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's National Bank Chairman Serhii Tyhypko unexpectedly announced on August 29 that the country's central bank was ready to repay its $1.84 billion debt to the International Monetary Fund in full by the end of this year.

Mr. Tyhypko said that by returning the full outstanding amount early, the country would see savings of $40 million. He said the NBU's hard currency reserves, which have reached $7 billion this year, the largest ever, allowed for such a pre-term repayment and would not affect the hryvnia's stability. The move was merely another sign that Ukraine's financial situation was stable and improving.

"People must understand that prices will not be jumping and the market will remain stable," said Mr. Tyhypko.

Mr. Tyhypko emphasized that the move was not intended to break-off cooperation with the IMF, but to foster more confidence. The terms of the two IMF programs with Ukraine - the standby program and the EFF (Extended Fund Facility) program - which were in effect between 1997 and 2001, allow for pre-term payment, however the IMF Board of Directors must first approve the conditions. Mr. Tyhypko said the IMF was already aware that Ukraine might pursue a pre-term payment.

The NBU chairman also downplayed suggestions by reporters that the decision to repay the IMF in full, which had been suggested by President Leonid Kuchma during his Ukrainian Independence Day address, was a political move as the country prepared for the beginning of political campaigns this fall in advance of the November 2004 presidential elections.

Mr. Tyhypko said the primary purpose was the continuation of fiscal reform and the suppression of inflationary tendencies.

"We must achieve 5 percent to 6 percent inflation, 7 percent maximum," explained Mr. Tyhypko, so that people have faith in the stability of the economy. Ukraine's rate of inflation seven months into the current year stands at 4.5 percent.

Whether Ukraine's government would agree with the NBU chairman's assertions remained in doubt, however, as late as four days after the announcement. Originally Prime Minister Viktor Yanukovych responded to the unexpected news by stating that while political will existed to go for early repayment, it would be "a difficult task" to do so, reported Interfax-Ukraine.

"I cannot say for sure that such a decision will be made [by the Cabinet of Ministers]," explained Mr. Yanukovych.

Three days later First Vice Prime Minister Mykola Azarov continued to refrain from giving government endorsement for the move. On September 1 he said that a lump sum repayment of such a large amount could have "possible consequences on the country's financial system." He said that the government had to study the effect of the repayment on its ability to service its other debts, including Eurobond obligations.

The next day, commenting after the opening of the fall session of the Verkhovna Rada, Prime Minister Yanukovych expressed outright skepticism that the plan could receive government approval.

"The government and the National Bank of Ukraine will jointly consider possible pre-term redemption of Ukraine's debt to the International Monetary Fund, but I am not sure the decision will be positive," explained Mr. Yanukovych.

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