“You have to pay your debts”: how Ukraine is trying to coordinate a new loan from the IMF

Representatives of the International Monetary Fund (IMF) reported significant progress in discussing legislative initiatives with the Ukrainian authorities aimed at improving the country's economy.

“The team of IMF specialists who visited Kiev has made significant progress in discussing legislative initiatives aimed at supporting growth and ensuring stability. Negotiations will continue in the coming days, ”Reuters quoted the IMF as saying.

International Monetary Fund experts began work in Kiev on February 20, negotiations lasted more than a week.

In December 2019, President of Ukraine Vladimir Zelensky and the head of the International Monetary Fund, Kristalina Georgieva, announced an agreement to provide Kiev with a new tranche of financial assistance. It was noted that a loan of $ 5.5 billion will be allocated to the Ukrainian side within three years.

At the same time, Georgieva then emphasized that this agreement should still be approved by the IMF leadership. According to her, the provision of funds depends on the effectiveness of reforms in the country.

“This agreement is subject to approval by the IMF management and its Executive Board, and its entry into force will depend on the implementation of a number of previously agreed preliminary measures. The president and I agreed that the success of the Ukrainian economy depends to a large extent on strengthening the rule of law, increasing the integrity and integrity of the judiciary and reducing the role of vested interests in the economy, and that it is extremely important to preserve the results achieved during the recovery of the banking system and reimburse taxpayers major losses associated with the reorganization of banks, ”she said.

• World Bank Chief Executive Officer Kristalina Georgieva
• RIA News
• © Alexey Vitvitsky

The fact that the provision of credit to Ukraine depends on the success of reforms in the country, including in the banking sector, was announced by the IMF spokesman Jerry Rice in November 2019.

“Ensuring the independence and financial stability of the central bank, exerting maximum efforts to reduce budget expenditures associated with the reorganization of banks, as well as strengthening the rule of law and the fight against corruption, is crucial,” he said.

In addition, Rice said the need to reduce the influence of the oligarchs on the economy.

“We believe that Ukraine needs to implement certain structural reforms, in particular, to improve public administration, fight corruption, and reduce the role of the state and the oligarchy, continuing, as I said, to pursue fiscal and monetary policies aimed at macroeconomic stability,” - concluded the representative of the IMF.

On February 13, 2020, Rice announced that the Fund was continuing consultations with Kiev on the issue of financial assistance.

"Anti-Coloma Law"

According to experts, one of the issues most likely discussed by the Kiev authorities and IMF representatives in the negotiations concerns bill No. 2571. In the Ukrainian media it is often called the “anti-Colomian law,” because it directly affects the interests of the Ukrainian oligarch Igor Kolomoisky.

Bill No. 2571 regulates the withdrawal of insolvent banks from the market and effectively prohibits the return of their former owners. Today, the fate of about ten of such banks is disputed in the country's courts, the largest of which is PrivatBank, previously owned by Kolomoisky and transferred to state ownership in 2016 by decision of the Cabinet. It is alleged that this was due to the fact that its founders withdrew funds from the bank's balance to foreign accounts before they lost the asset. The IMF supported this decision, but the oligarch is trying to challenge it.

The first version of bill No. 2571 received IMF approval, but then the Verkhovna Rada Finance Committee developed a new version of the document, which was not agreed with the Fund’s experts. It has not yet been submitted to the Rada, but its content has become known to the Ukrainian media.

According to them, the new version of the bill continues to ban the return of nationalized banks, but at the same time new items are introduced that experts believe will significantly increase the chances of former owners, including Kolomoisky, to receive compensation from the state for lost assets.

According to a RT source in the Ministry of Finance of Ukraine, the IMF is opposed to a possible return of PrivatBank to Kolomoisky in any form.

“The state spent billions of hryvnias to support banks. But the judicial system in Ukraine is still not clean, and the former owners have every chance of recovering the lost funds. Most of all, the IMF is worried about the possible return of PrivatBank to oligarch Igor Kolomoisky. Therefore, representatives of the Fund are demanding the adoption of a law that would make such a return impossible, ”the source said.

• Igor Kolomoisky
• Reuters
• © Valentyn Ogirenko

In turn, the RT source in the European Solidarity party notes that the IMF wants to force the Ukrainian president to minimize the influence of oligarchs on decision-making in the country.

“The IMF very insistently demands that President Zelensky distance himself from the oligarchs. But this is not happening yet. As far as I know, the new head of state has already found a common language with Rinat Akhmetov. It is possible that soon all the reforms that the IMF constantly talks about will be forgotten, ”the deputy said.

The head of the Ukrainian Center for Political and Economic Analysis, Alexander Kava, agrees with this position. In his opinion, the possession of such an asset as Privatbank gave Kolomoisky a very big influence on the situation in the country, which is not consistent with the requirements of the IMF.

According to experts, even if the IMF and Kiev still manage to resolve all controversial issues and agree on the allocation of $ 5.5 billion, the Ukrainian government will still have to spend them on paying off old debt obligations, and not on improving the economy.

“First of all, it will be spent on payment of debt obligations, because the condition for granting loans is the closure of previous debts,” said Vladimir Zharikhin, deputy director of the Institute of CIS countries.

At the end of 2019, government debt and the government-guaranteed debt of Ukraine amounted to $ 84.4 billion. According to the National Bank of Ukraine, peak payments on external debt in 2020 will fall in the first and third quarters ($ 5.415 billion and $ 5.237 billion, respectively). In total, in 2020, the Cabinet, the NBU, as well as enterprises and banks plan to transfer $ 17.059 billion to creditors, of which $ 3.999 billion will be in interest payments.

According to an RT source in the Golos party, today Ukraine is actually borrowing money to pay off previous creditors, and the situation is becoming more and more like a vicious circle.

“The situation is not the most pleasant: the Zelensky government needs to pay on debts that accumulate like a snowball. Ukraine has to take loans to pay off previous debts. All this, sooner or later, will lead to default, which ordinary people will suffer from, ”the deputy said.

Abandon the IMF

Against this background, in November 2019, the head of the Ukrainian Ministry of Finance Oksana Markarova announced her intention to complete cooperation with the IMF in 2023 and completely switch to self-sufficiency.

“My ambitious plan is to be able to finish it (program with the IMF. - RT ). So that in 2023 we do not have a question when we will receive a new tranche, and we could provide for ourselves, ”she said.

• President of Ukraine Vladimir Zelensky
• Reuters
• © Valentyn Ogirenko

However, the feasibility of such ambitious tasks interviewed by RT experts questioned.

“Theoretically, this is possible. For example, Russia managed to do this at one time. But for this we need to work, we need to restore industry, but the authorities are more involved in politics than economics, ”Zharikhin said.

A similar opinion is shared by Cava.

“The current government will not be able to exactly achieve this. Those statements that were made, those plans that were announced, were not implemented. In addition, there is no political stability in the country, therefore making forecasts for the medium term is very difficult, ”the expert concluded.

The interlocutor of RT from the Batkivshchyna party is also skeptical about the possibility of refusing IMF services in the foreseeable future, noting that today "the country's financial stability is very unstable."

“The government of Ukraine has printed and sells domestic loan bonds (OVDPs) on international markets. Foreigners buy securities because they are sold at high interest rates. But, apparently, the generosity of investors will soon end: at the last auction, government bonds were sold poorly. This means that the hryvnia will fall, the standard of living of the population will decrease, and Ukraine will have to go to the IMF again with outstretched hands, ”the deputy concluded.