Kyiv Post

One week left to persuade IMF give Ukraine money under current deal

- By Anna Myroniuk myroniuk@ kyivpost.com

The $5 billion loan program from the Internatio­nal Monetary Fund expires in December and so far, Ukraine only got $2.1 billion.

Meanwhile, Ukraine’s deadline to pay $3.8 billion in public debt is approachin­g in September.

Ukraine now has a week to try to secure another tranche before the IMF leadership goes on vacation in August.

Ukraine has recently moved clos‑ er to meeting the IMF’s conditions. Officials have said they expect to receive the $700 million tranche any day now.

“All the conditions that were agreed on were fulfilled in a sense that the Verkhovna Rada passed them ( the bills). We can now put a tick ‘ okay’ near those questions on the list,” said Oleh Ustenko, an adviser for Ukraine’s President Volodymyr Zelensky.

The IMF does not see it that way. “I can say we welcome the recent approval of laws that will strengthen the judicial system in Ukraine, but more progress is needed in several other areas to support completion of the first review, under the IMF supported program,” Gerry Rice, the IMF’s communicat­ion director said at a press conference on July 15.

This means Ukraine will not receive the second tranche, Serhiy Fursa, an investment banker at Dragon Capital, believes.

“I think that (another) tranche is impossible,” he told the Kyiv Post.

Ukraine got the previous tranche over a year ago. In June 2020, the IMF and Ukraine agreed that the country put in numerous reforms in exchange for $5 billion in cheap loans. The country then got $2.1 bil‑ lion on the spot and was told to fix some of its most glaring problems.

Instead, it created new ones. In October, the Constituti­onal Court overturned some crucial anti‑cor‑ ruption reforms.

Since then, the IMF mission has been calling on Ukraine to bring things back to normal. This work is still in progress.

In the past 25 years, Ukraine has never managed to fulfill all of the IMF’s demands. .

Ukraine’s high hopes

Kyiv aims to sign a so‑called staff level agreement with the IMF by the end of July. It would have to be approved by the Fund’s board of directors as recognitio­n of the reforms’ success.

Such a paper is more important than the money itself, Ustenko said.

“It is not just about the money. The point is that we want to have the firm support of the IMF,” he said, “This will mean that the IMF acknowledg­es that we have made significan­t progress. And we have. And we want confirmati­on that we have made this progress.”

This agreement will define wheth‑ er Ukraine receives receives money from the European Union and World Bank.

Meanwhile, Ukraine’s older debts

are coming due. In September, the country must repay state debt and interest of almost Hr 105 billion ($3.8 billion) out of Hr 602.5 bil‑ lion ($22.3 billion) it is set to pay in 2021, according to the Finance Ministry.

Economic experts say Ukraine’s authoritie­s are too optimistic about getting the loans this summer.

“We believe that expecting money by September is optimistic because the IMF’s conditions for Ukraine have not yet been met,” said Elina Ribakova, deputy chief economist at the Institute of Internatio­nal Finance based in the U.S.

If Ukraine does not manage to secure the deal in the coming week or so, it’s unlikely to get the money at all.

“Should negotiatio­ns spill over into autumn, the IMF could also want to see the new budget passed before the disburseme­nt. With the program expiring in December, we think it is likely the IMF would prefer to start new program negotiatio­ns at the same time,” Ribakova said.

In the worst‑case scenario where Ukraine receives no money from the IMF by September, there is a plan B, Ustenko said, but declined to discuss it.

According to Fursa, Ukraine will manage to pay the debts even with‑ out the IMF’s tranche.

“On the one hand, we do need to remain in the program for confi‑ dence. On the other hand, we will be able to pay the September depts without the IMF tranche. We will be able to do so thanks to other IMF money,” he said.

The IMF is distributi­ng a $650 billion allocation of Special Drawing Rights monetary reserves to mem‑ ber countries this summer and

Ukraine is to get its portion of $2.8 billion with no conditions to meet.

What IMF wants

First, Ukraine must fix the crisis in the National Anti‑Corruption Bureau.

In August 2020, the Constituti­onal Court ruled unconstitu­tional the 2015 appointmen­t of bureau chief Artem Sytnyk, who is trusted by the West.

According to the court, hiring or firing the NABU chief is beyond the president’s jurisdicti­on. Sytnyk still has his job now.

The new law bill suggests granting the Cabinet of Ministers the power to appoint and dismiss the head of NABU selected by a special com‑ mission. The lawmakers approved it in the first reading but then went on recess. They will return to work in September.

Ustenko hopes the IMF will believe Ukraine’s promise that par‑ liament will pass the bill.

“I understand that nowadays peo‑ ple do not have much trust in prom‑ ises, but they have our word that the NABU issue will be solved after it is agreed within the country, then with the Venice Commission and interna‑ tional partners,” Ustenko said.

Fursa does not think the IMF will be convinced.

“The thing is that we have betrayed the IMF’s trust so many times that it is unlikely they will do it,” he said.

The bill in its current shape undermines NABU’s independen­ce because it may be used to fire Sytnyk before his contract expires in April 2022. There are no legal grounds for this, according to the watchdog Anti‑Corruption Action Center.

The IMF also wants Ukraine to finally select a new head of the Special Anti‑Corruption Prosecutor’s Office (SAPO) which has been absent since its previous head Nazar Kholodnyts­ky resigned in August 2020 amid allegation­s of corruption.

The process stalled. Some mem‑ bers of the selection panel have been backing government‑favored candidates.

Corporate governance standards are another demand, following the sudden dismissal of Andriy Kobolyev, the CEO of Ukraine’s state‑owned oil and gas company Naftogaz on April 28.

His controvers­ial firing worried the IMF so much, it had recalled its senior economist from Ukraine, Novoye Vremya magazine reported on April 30, citing its sources.

What Ukraine fulfilled

There are a few major break‑ throughs. One is judiciary reform.

Part of it is reforming the High Council of Justice, the judiciary’s main governing body. The parlia‑ ment gave foreign experts a decisive role in firing tainted members and hiring new ones.

The parliament also gave foreign experts a crucial role in creating a new High Qualificat­ion Commission of judges, a body that hires and fires judges.

On July 22, parliament sent these bills to Zelensky’s desk.

But some judicial experts are con‑ cerned that the legislatio­n will not be implemente­d, as has happened in the past. In 2019, Zelensky signed a similar judicial reform bill but the High Council of Justice refused to carry it out.

Another step forward is Zelensky signing a law that introduces prison terms for officials lying in mandato‑ ry asset declaratio­ns on July 16.

In October, the Constituti­onal Court destroyed asset declaratio­n legislatio­n and stripped the National Agency for Preventing Corruption (NAPC) — tasked with checking declaratio­ns — of most of its pow‑ ers. NAPC got its powers back in December 2020.

Ukraine kept a few more promises to the IMF.

On June 30, parliament approved the law on the National Bank, increasing the responsibi­lity of the bank’s management board and supervisor­y council for the decisions they make. Among other things, it expands the powers of the NBU to implement risk‑oriented supervi‑ sion, ensuring prompt response to deteriorat­ing solvency and liquidity of the bank.

However, since early July, the National Bank of Ukraine has been experienci­ng a wave of resignatio­ns.

Over a dozen of its employees, including several department heads, left the office. They accused the central bank’s leadership of usurp‑ ing power and suppressin­g con‑ sensus. Financial Times reported that Zelensky’s office was consid‑ ering firing NBU governor Kyrylo Shevchenko, citing anonymous sources.

The independen­ce of the central bank is important to the IMF, which sees the regulator’s reform of the banking sector as one of Ukraine’s biggest success stories.

The IMF also praised the long‑awaited opening of the land market on July 1.

Even so, the list of Ukraine’s com‑ mitments to the IMF has 30 bullet points. The country did not manage to check off all of them.

 ??  ?? A woman walks past the headquarte­rs of the Internatio­nal Monetary Fund (IMF) building in Washington, DC on April 5, 2021.
A woman walks past the headquarte­rs of the Internatio­nal Monetary Fund (IMF) building in Washington, DC on April 5, 2021.

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