“Return is close to zero”: on what conditions did the IMF open a new loan program for Ukraine

The International Monetary Fund (IMF) sent Kiev the first loan tranche of $ 2.1 billion under the new assistance program. The funds will go to the Ukrainian treasury. This was announced by the representative of Ukraine at the Foundation, Vladislav Rashkovan on his Facebook page.

He recalled that on the eve of the fund’s board of directors approved a new program of financial support for Ukraine, designed for 18 months and a total amount of $ 5 billion.

“The first tranche of $ 2.1 billion has already been sent to Ukraine - it will be on the accounts of the government, taking into account the time difference and the speed of funds flow in international payment systems,” Rashkovan wrote.

The representative of Ukraine explained that the Stand-by program is the first structural lending program that the fund approved since March 26 of the current year - since the introduction of the organization’s quarantine regime. In addition, the size of the Ukrainian program exceeds the level of support of other countries.

“Once again, thanks to everyone who walked along this difficult path. Now, it’s up to the small business, to follow the program starting today, ”Rashkovan added.

Pandemic tranche

According to the IMF press release, the new program is designed to help Ukraine overcome the problems that have arisen due to the COVID-19 coronavirus pandemic by ensuring balance of payments and budget support. At the same time, the Ukrainian authorities are obliged to maintain their previous course and promote small structural reforms, which should guarantee a return to growth after the current crisis caused by the pandemic ends.

The Prime Minister of Ukraine Denis Shmygalnakanune also commented on the news about the allocation of a new tranche by the IMF to Kiev. The politician said on his Facebook page that the funds of the first tranche will be used to support citizens.

“These are social payments, support for small and medium-sized businesses,” the head of the Cabinet explained.

• Denis Shmygal
• RIA News

He also tried to clarify the most pressing issues related to the terms of the loan. Thus, the topic of raising the retirement age is not addressed in the program, Shmygal said in a statement.

“The retirement age will not be definitely raised. In this program there are neither such requirements, nor such an option, ”says the Ukrainian prime minister.

The politician also answered the question of whether utility tariffs for the population would increase.

“It's not about raising tariffs. In the last heating season, the fixed gas price in tariffs was written at a level of over 6.5 thousand UAH per thousand meters cubic meter. Now the market price of gas is half as much. In the next season, Ukrainians should pay for heating, our task is to make the gas price in tariffs correspond to the market price, and not to overstate, ”Shmygal explained.

Recall that last year, world prices for natural gas fell to the lowest level in the last 15 years. So, over the past year, the cost of gas with immediate delivery to the largest gas hub TTF (Netherlands) fell by 57% and amounted to about $ 110-120 per thousand cubic meters.

At the same time, Naftogaz was in no hurry to bring gas prices for the population in line with the global level. For example, in September 2019, the average spot price at the TTF hub in the Netherlands fell to $ 117 per thousand cubic meters (UAH 2925 at the exchange rate for September. - RT ), while Naftogaz sold gas to the population at the price of 4493.64 in September. UAH per thousand cubic meters excluding value added tax (VAT) and transportation costs.

A memorandum of economic and financial policy with the International Monetary Fund and a draft letter of intent to the IMF were approved by the Ukrainian Cabinet on May 20.

However, the authorities preferred not to disclose the content of these documents to the general public. Only in early June were some details of the approved memorandum announced. As Denis Shmygal said then, the document contains provisions on the transparency of the work of state banks and state-owned enterprises, strengthening the independence of the Antimonopoly Committee, customs reform and tax. The prime minister also confirmed that we are talking about bringing gas prices to market levels.

The reluctance of the Cabinet to publish the full text of the memorandum caused bewilderment in the Rada.

According to the speaker of the Ukrainian parliament, Dmitry Razumkov, the government should present the text of the memorandum to the public.

“I am sure that the Cabinet must demonstrate a memorandum that will be signed with the IMF,” the parliamentarian said.

Seven Seal Memorandum

At the same time, the media managed to get information about the terms of the document. According to “STRANA.ua”, the editors had at their disposal a complete test of the memorandum. According to the publication, the document contains a number of unpopular conditions, including an increase in the tax burden on business and the public.

The document also allegedly states that until the end of the program Ukraine is obliged not to liberalize fiscal legislation and introduce preferences on duties. According to the publication, this condition will cause great disappointment in Ukrainian business circles.

Another unpopular clause of the memorandum, according to STRANA.ua, is the obligation of the Ukrainian authorities to continue the pension reform, which began in 2017, which implies an increase in the retirement age.

• RIA News

Kiev also pledged to continue the reform of the health system initiated by Ulyana Suprun, which will cause discontent among the population, journalists say.

At the same time, earlier in the Ministry of Health of Ukraine they announced plans to make serious adjustments to the reforms begun under the past president Petro Poroshenko.

“The medical reform in the form in which we received it does not provide anything good either for patients or for doctors,” the current Minister of Health Maxim Stepanov said in May of this year.

He explained that in his current format, the reform will only lead to a reduction of 50 thousand medical workers and the closure of more than 300 hospitals, which, in turn, will cause a “catastrophic increase in mortality”.

However, the new agreement with the IMF involves the continuation of the previous course, the Ukrainian publication notes.

In addition, Kiev is reportedly committed to reforming the education system, although the memorandum does not specify specific dates. We are talking about optimizing the school network - closing part of the school.

As Ukrainian political scientist and economist Alexander Dudchak noted in an interview with RT, the information presented in the media looks very believable.

“The only thing is not clear why hide this document, if the country's population already knows about these conditions. Under Poroshenko, Ukraine signed under similar conditions, and Zelensky is now continuing this course. And thus, Ukraine signs the complete absence of state sovereignty, ”the expert noted, adding that so far not a single IMF program for Kiev has been fully implemented.

According to an RT source in the Ministry of Finance of Ukraine, Kiev has to make big concessions to cooperate with the IMF.

“Therefore, the memorandum will be published after the decision of the fund, which will avoid speculation. Representatives of the previous government delayed important reforms to the last, such as opening a land market or protecting PrivatBank. Unpopular steps had to be taken by the new leadership. But the IMF’s confidence in the Ukrainian authorities is small, and therefore the program has been adopted with a short term, ”the official said.

To date, only a few people in the country have seen the document, a representative of the European Solidarity Party said this in an interview with RT.

“This document can be anything. And we all will have to fulfill these promises, ”the source said.

As Mikhail Krivoguz, a leading researcher at IMEMO RAS, explained in a commentary to RT, now we are talkingon the renegotiation of agreements with the IMF, the program that has been operating since 2018 expires and is replaced by a new one under new conditions.

“Ukraine has been cooperating with the IMF since 1992, during this time there were more than 10 different both short-term and long-term programs, which are accompanied by a number of conditions. But none of them was completed to the end, since the Ukrainian side had not complied with the IMF conditions for years, or formally performed for reporting to the creditor. Recently, however, under pressure from the IMF and external circumstances, the Ukrainian government has really begun to carry out reforms, for example, pension, land, ”the expert noted, adding that the funds are not given to Kiev for investment and the revival of production, but only to cover current state budget expenditures.

Sham reform

Moreover, most of the reforms that are carried out under pressure from the IMF are fake, the source of RT in the Batkivshchyna party believes.

“The opening of the land market will not allow attracting real investors, and Igor Kolomoisky will receive compensation in another way. This is all well understood in the West, but for them, keeping Ukraine “on a leash” is much more important than improving the lives of ordinary Ukrainians. However, the IMF’s requirements will be tougher every year, ”the source said.

• Vladimir Zelensky
• Reuters
• © Sergey Dolzhenko / Pool

Experts adhere to a similar point of view. Oleksandr Dudchak does not exclude the possibility that after the current government has fulfilled the IMF condition for land reform, the fund will further increase its requirements for Ukraine.

“As a rule, the IMF sets its conditions in the format of requirements that are not subject to discussion, and Ukraine signs them. And at the same time, reforms carried out to please the IMF are ineffective, ”said Alexander Dudchak.

Mikhail Krivoguz also does not exclude that the IMF will now begin to actively increase its requirements for Ukraine.

“It is still difficult to say which requirements are suitable and good for Ukraine, and which are not. For example, six anti-corruption structures were previously created. From year to year, funding for their maintenance is increasing, while the return on them is close to zero, ”said the expert.

At the same time, Kiev could not rush to implement unpopular reforms, as it was in previous years, but still receive credit tranches, the analyst said.

“The West is not ready to just pass the Ukrainian project, allowing the economic collapse of Ukraine. In any case, support to Ukraine would be provided, because the USA and the EU, despite the current crisis, are still not ready to leave Ukraine to themselves, ”the expert summed up.