Prime Minister Viktor Yushchenko’s trip to Washington marred by release of audit showing Ukraine misled IMF in order to secure loans in the late 1990s
rmed allegations that Ukraine misled the International Monetary Fund over the size of its hard currency reserves several years ago.
In a series of high-profile meetings at the White House on May 8-9, Yushchenko met with U.S. President Bill Clinton, Secretary of State Madeleine Albright and Vice President Al Gore.
The U.S. side offered its usual praise of Ukraine’s progress in economic reform, but the talks resulted in little of substance outside of a promise from Yushchenko that Ukraine would close the Chernobyl nuclear power plant by the end of the year.
Of more consequence were Yushchenko’s talks with the IMF, which failed to result in a commitment from the fund to resume its $2.6 billion loan program for Ukraine, frozen last September.
The talks represented the first official communication between Ukraine and the IMF since the release of a preliminary audit by PricewaterhouseCoopers that showed the National Bank of Ukraine overstated its foreign exchange reserves to the IMF by some $713 million between 1996 and 1998. Yushchenko was head of the central bank at the time.
The audit, which came out on May 4, confirmed earlier assertions by the IMF that Ukraine received $200 million that it might not have received if it had not overstated its reserves.
However, the report provided no evidence of any illegal use of those funds. Several newspapers, quoting various sources, reported earlier that top Ukrainian officials may have benefited from illegally using IMF funds to profit from transactions on Ukraine’s domestic bond market.
In Washington Yushchenko met for the first time with newly appointed IMF Managing Director Horst Koehler. The little information that came out of that meeting indicated that the sides were headed for a lengthy discussion of the situation before the IMF would consider resuming lending.
“[Koehler] and [Yushchenko] reviewed Ukraine’s progress in implementing reforms, especially privatization and improvements in the financial system, which are the basis for Fund financial support,” an IMF spokeswoman told Dow Jones Newswire.
“The issue of the PricewaterhouseCoopers report was also discussed, with emphasis on what remains to be done - in particular stage two of the [auditors’] report - and board discussions on safeguards in the NBU’s reserve management,” she said.
An IMF report on what its own staff knew about the problem is due out in June, along with a second PricewaterhouseCoopers report, this one on the bank’s activities from Nov. 30, 1996, to July 31, 1997.
The Ukrainian side continues to vehemently deny that its actions violated its understanding with the IMF.
Yushchenko, in an interview with U.S. news channel CNN, provided the Ukrainian interpretation of why the reserve figures had been overstated, saying, “The problem was with the old accounting from the time of the Soviet Union and the system of accounting that we use now.”
“There have been different interpretations of the economic information,” Yushchenko said.
The IMF, in a statement accompanying the PricewaterhouseCoopers report posted on the fund’s Web site, said it would consider “remedial action” against Ukraine “once a final determination on misreporting is made.” It gave no clue as to what this action might be.
Ukraine’s case, however, is similar to that of Pakistan, where the government recently admitted that the previous administration had lied about tax data to the IMF, encouraging the fund to disburse the money it might otherwise have withheld.
Following the admittance, Pakistan promised at the end of April to repay $55 million in IMF loans.
The IMF, which first drew attention to the problems with Ukrainian reserve data in March, said Kyiv had already taken several steps to ensure that this sort of problem did not occur again.
Measures included quarterly audits of the reserve position of the NBU and efforts to improve management practices at the central bank.
Albright and Clinton avoided making public mention of the IMF scandal, choosing instead to offer effusive praise for the Yushchenko government, which Washington sees as Ukraine’s best hope yet to end a decade of continuous economic decline.
“They had a very warm and productive discussion,” National Security Council spokesman Mike Hammer said after Clinton dropped in for half of a one-hour meeting between Yushchenko and Berger on May 9.
“The president praised the prime minister for Ukraine’s ongoing efforts and progress in economic reform. He encouraged them to continue efforts at trying to become better integrated into Europe,” Hammer said.
The two sides also discussed Clinton’s upcoming visit to Kyiv, scheduled for June 2.
Ukraine annually receives $225 to $230 million from Washington, which makes it the third-large recipient of U.S. aid dollars.
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