Having approved a $17 billion bailout for Ukraine on April 30, the International Monetary Fund (IMF) admits that the assets may not be enough because of political uncertainty in the country. "This [bailout] program does have risks of two kinds: first of all, implementation, second, geopolitical. On the implementation front, we are taking all the precautions we can in order to mitigate those risks. On the geopolitical front, clearly the bilateral international support and the cooperation of all parties will be extremely helpful to reinforce the position of the economy of Ukraine," IMF Managing Director Christine Lagarde told reporters.
“The unfolding developments in the East and tense relations with Russia could severely disrupt bilateral trade and depress investment confidence for a considerable period of time, thus worsening the economic outlook,” IMF experts say in the IMF’s April 2014 Country Report on Ukraine.
The experts also point out that the situation may cause a decline in budget revenues and sharp increases in military spending.
“With presidential elections scheduled for May 25, and a likely run-off on June 15, political pressures could result in incomplete program implementation in the months ahead. Moreover––should a new government be formed following the presidential or possible later parliamentary elections––it could seek to reopen discussions on key program policies,” the report reads.
With due regards for the risks, which are characterized by the IMF as “unprecedented,” the IMF decided to issue bi-monthly reviews on the Ukrainian economy. “The program will start with two high-frequency bi-monthly reviews. The first review sets end-May as a test date. This will ensure close monitoring of policy developments. Deviations from the agreed policies will be spotted early and addressed promptly,” the report reads.
To demonstrate their commitment to program objectives, the Ukrainian authorities have implemented twelve prior actions in the area s critically important for program success. “Going forward, staff expects that program reviews will be conditional on other macro-critical prior actions,” reads the report.
Economists at the Institute of International Finance, an industry group representing more than 450 of the world’s largest private banks, insurance companies and other financial firms, said they expect an overhaul of the bailout within its first year, The Wall Street Journal wrote. Peter Attard Montalto, an emerging-markets economist at Nomura, also said the growth forecasts are “far too optimistic.”
The IMF has already gained negative experience in work with Ukraine: two recent IMF programs haven’t been implemented by Kyiv in full.
At the same time, the incumbent Ukrainian government demonstrates high commitments to reform. The IMF’s positive decision in keeping with which Kyiv will immediately receive $3.2 billion, paves the way for aid from other international donors: $1 billion from the United States and EUR 1 billion from the European Union.
