You're reading: IMF arrives to Ukraine, but no hope for cash

An International Monetary Fund mission arrived to Ukraine on Aug. 29 at the request of Deputy Prime Minister Valeriy Khoroshkovskiy, who has been courting IMF in a hope to eventually restart the $ 15.6 billion facility approved in 2010.

Ukraine
only received $5 billion of this loan before the program was frozen in early
2011 due to the government’s stubbornness in refusing to hike the utility
prices for the population. The government needs to hike the price by up to 50
percent to be able to cut the bleeding from the budget in the form of
subsidies.

The
mission’s job this time is to examine the 2013 budget to make sure that the IMF
is comfortable with its basic parameters, and Ukraine gets a chance to renew
borrowing next year, a senior government official said.

In August,
Khoroshkovskiy traveled to Washington and met with IMF’s Managing Director
Christine Lagarde, asking for a new mission to be sent, in order “to prepare
ground for cooperation in the future,” a source in the government said on the
condition of anonymity because he is not authorized to speak on the issue. He
added that the meeting was “very amicable.”

 Just hours
after the mission’s arrival to Ukraine, Petro Poroshenko, the economy minister
told the media that the government might reconsider the basic parameters of the
next year’s budget to make them less optimistic.

 The Gross
Domestic Product forecast for next year is 3.6 percent, down from the earlier
forecast of 4.1 percent. Inflation is expected to stand at 7.8 percent.
Poroshenko was quoted by Interfax news agency as saying the government might
approve the budget on Sept. 12 and send it on to parliament.

 This year’s
macroeconomic indicators might also be reduced. The government forecast GDP’s
growth at 7.9 percent. But Dragon Capital investment bank recently slashed its
GDP forecast to just 1 percent.

Ukraine
needs the IMF cash badly.  It has been borrowing heavily to be able to
bridge the gap in its financing. Just two days before the mission arrived,
Ukraine placed a $1billion Eurobond, paying a semiannual coupon of 7.95 percent
and maturing in June 2014. The bond was needed to settle a part of the $2
billion loan with Russia’s VTB. The first half of the loan was repaid in June.

On top of
the VTB loan, Ukraine is due to pay $1.6 billion in debt by the end of the
year, according to Dragon Capital.

In July,
Ukraine placed another $2 billion dollar Eurobond, at 9.25 percent, making it
the most expensive and the largest placement in the past 12 years.

 The state
of the nation’s finances is so bad that former president and banker Viktor
Yushchenko said on Aug 28 that Ukraine is close to default.

 “International
experts rank Ukraine as the fourth in the world by the chance of default. This
is an absolutely correct reaction, because there are reasons for it,”
Yushchenko said. He also speculated that in the absence of international loans
the government will switch on the printing press.

 He
traditionally blamed his former ally turned enemy Yulia Tymoshenko for the
problem, though, saying that as a prime minister she borrowed too heavily and
at high rates. 

Kyiv Post editor Katya Gorchinskaya can be reached at [email protected]