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Ukraine agrees budget with IMF, funding seen from May

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April 2, 2010, 2:56 p.m. | Business — by Reuters

An IMF mission visited Ukraine this week and said progress had been made in talks to resume a suspended $16.4 billion bail out for the cash-strapped ex-Soviet republic.

Reuters

Ukraine expects to have a new International Monetary Fund programme in place in May and has agreed on the size of the budget deficit, seen as a key sticking point in talks, Prime Minister Mykola Azarov said on Friday. An IMF mission visited Ukraine this week and said progress had been made in talks to resume a suspended $16.4 billion bail out for the cash-strapped ex-Soviet republic.

But the size of the state budget deficit had remained a key problem, with the IMF pressing for fiscal prudence and the government committed to social spending initiatives.

"We have reached an agreement on the key issue of the state budget. We have agreed that the state budget deficit could be within the limits of around 6 percent (this year)," Azarov told reporters.

"A memorandum will be prepared in April and then will be signed. After that the board of directors meeting on a new programme will take place. We expect that in May we will resume the cooperation with IMF," he added.

Kiev officials have indicated they were seeking a deficit figure of 10 percent, suggesting the IMF was won concessions from the government on the headline number.

In 2009, the deficit was around 14 percent, Azarov said.

Some $6 billion of the suspended IMF package is yet to be distributed to Ukraine, whose economy shrank 15 percent in 2009. The programme was suspended late last year when then President Viktor Yushchenko approved a rise in minimum wages and pensions despite earlier undertakings to the IMF not to do so.

Negotiations resumed with the election of Viktor Yanukovich as President in February. Ukraine's new leaders have signalled that resuming cooperation with the IMF -- either by restarting the old programme or agreeing a new one -- is a priority. But they also want to go ahead with social spending plans.

Hopes of more cash from the IMF have cheered investors, sending yields on Ukraine's 2016 dollar bondbelow 7.5 percent -- levels not seen since mid-2008 -- and boosting demand at auctions of domestic debt.
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Anonymous April 2, 2010, 6:13 p.m.    

Interesting to know whether the Nafotgaz and social spending is included in the deficit number of around 6%.

In addition i wonder if IMF has made some statement on the state auctions to be set out this year, with the first to be the locomotive factory.

The government way of putting a factory out for a fire sale of 50 Million USd despite the stock value is set for 125 million USd, makes you wonder what interests Ukraine prime minister and president have in mind - the Ukraine people and need for money - or Russian and Ukraine Oligarchs to please Russians to get low gas price.

I think IMF should push for a commitment from the existing leadership about transparent and market valus auctions, in order to get as much money as possible to a hard strained budget of Ukraine state.

Ukraine can afford a market price of gas if Naftogaz stop the subsidies of both industrial and residential customers, most to be gained by making Ukraine industry pay the market price they should.

If they in addition get away with all middle-men in gas transport within Ukraine, then threy will make the gas price affordable for the residential clients.

No, Ukraine is on the path down the rental economy again, and it seems like there are too many oligarchs within the political power structure to change it now for at least 5 years.

The Ukraine people should react now, and makes demands of changes to how the Ukraine politician prioritize on their behalf.

It is better to be independant with paying market price and no need to bend under pressure to get prices lower by giving away industry and pipeline transport systems.

Ukraine has few good cards on their hand, and should not gamble them away in the situation they are in now.

It is better to have a rich friend than someone who only want more from you at each milestone available.

In this case Ukraine rely on Eu countries investors, IMF and EBRD as well as charitiy funds.

Russia has not given anything in the process (loans or commitments). They have only commited to pay full market price on oil transport - and not gas transport, while demanding full marke price for the gas to Ukeaine domestic use, some friend he?

I bet the round in May will be desisive as Ukraine has to have a 2010 budget ready by that time - and given the lack of diplomatic skillsets on POR it does not seem like the Rada will be functional for a while and make this an impossibility at the worst.

What Ukraine need are politicians that can bridge between the factions in the Rada and stand for the Ukrainian people and not the faction and their exclusive elite of backers.

IMF need to pressure Ukraine to understand that there is a need for reforms, and not only on the budget but in a implementable form.

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Anonymous April 2, 2010, 6:45 p.m.    

Agree with all stated above.

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Anonymous April 5, 2010, 8:07 a.m.    

Agree. It has been the case in the past that deficit was promised at 6% but was not implemented, and same as the rise in gas prices. Funds were disbursed and the previous IMF officer had to be replaced. The proof will be in the implementation. IMF should not disburse until the measures are implemented and seen to be working. It is noted that Ukraine has gone without IMF money for six months now and it was able to get by during this time. This should not escape IMF that Ukraine's situation is not as bad as Ukraine government make it to be. This is probably due to the large shadow economy. IMF should not be in any rush to give funds and resist pressure from the new government in that regards.

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