IMF: Talks on hold until reforms adopted

Ukraine must pass vital financial and pension reforms before it can resume talks with the International Monetary Fund to resume a suspended loan program, the IMF’s country representative said on May 16. Max Alier said there had been no IMF missions to Kyiv since February and none were planned until after the reforms were passed.

“As of now, we’re waiting for progress... before we set up dates for the (next) mission,” he told Reuters on the sidelines of Adam Smith Conferences’ Ukrainian Investment Summit.

Ukraine’s $15 billion IMF program has been effectively frozen by Kyiv refusal to implement unpopular austerity measures such as raising the retirement age and hiking consumer gas prices by 50 percent.

The IMF refused to release a $1.6 billion loan tranche scheduled in March after the government failed to pass a pension reform bill and watered down gas price increases for households.

“Structural reforms have been lagging, not for the last two years but for a number of years,” Alier told the conference.

Ukraine’s $15 billion IMF program has been effectively frozen by Kyiv refusal to implement unpopular austerity measures such as raising the retirement age and hiking consumer gas prices by 50 percent.

He said Ukraine needed to bring down its “outrageous” level of pension expenditure, which at 18 percent of gross domestic product is one of the highest in the world. “This (reform) is very important for Ukraine’s medium-term sustainability,” Alier added.

Savings from a reduction of pension spending could be better deployed to infrastructure, health and education, he added. The IMF also wants Kyiv to repeal a measure introduced during the financial crisis that required the central bank to buy recapitalization bonds from banks.

“This is an extraordinary measure that made sense during the crisis and was meant to expire end-2010,” he said.

Alier also warned that Ukraine’s non-performing bank loan levels were high. Though international bad debt measures are not strictly comparable, Ukraine’s NPL level may be about 30 percent of total loans, he said.

Ukraine’s hryvnia currency has been under pressure since March when the IMF suspended the loan disbursement.