The restoration of financial cooperation with the International Monetary Fund (IMF) is the best way for Ukraine to quell doubts in the country's solvency in the near term, according to experts polled by Interfax-Ukraine on the sidelines of the 10th Yalta Annual Meeting.
"I think that one should not expect default. The situation is not so bad. Of course, it forces you to think and make decisions, but Ukraine has several safeguards that it can use. The most effective one is to resume cooperation with the IMF," CEO of Dragon Capital investment company Tomas Fiala told Interfax-Ukraine.
“The economic authorities have several solutions in stock, several options that could be painful for the public and could hit the ratings of the authorities, but on the other hand, this is better than default anyway. First of all, a deal with the IMF is possible,” said CEO of Concorde Capital investment company Ihor Mazepa.
The need to resume financial cooperation with the IMF was supported by the former vice premier, former governor of the National Bank of Ukraine and MP from the party of Regions, Sergiy Tigipko.
“The IMF is much needed even now. I’m sure that we have our own reserves, but I think that without IMF we’ll have a very hard period of time,” he told Interfax-Ukraine.
The lawmaker said that the temporary refusal from conducting a policy of quantitative easing by the U.S. Federal Reserve System will give a break to Ukraine for two or three months, but soon or later rates on the loan market will start growing.
“During these three months we won’t be able to borrow enough to settle all our problems with the debt. We should think about the IMF,” Tigipko said.
As reported, Moody’s Investors Service has downgraded Ukraine’s government bond rating to Caa1 from B3 and placed the rating on review for possible further downgrade, the agency said in a press release on September 20. The action was prompted by heightened concerns over Ukraine’s external liquidity position, increased downside risk related to future negotiations with the IMF, and increased political and economic risks due to deteriorating relations with Russia.
Russian presidential advisor Sergei Glazyev at the 10th Yalta Annual Meeting said Ukraine was at risk of default due to the deficit of the balance of payments, which he believes is already $10 billion, while if the Association Agreement with the EU is signed and the Customs Union introduces protective measures, it will expand to $15-16 billion, he said.
Fiala noted that the IMF Mission twice visited Ukraine in the first half of 2013, outlining all issues that are to be settled to restore the financing. He said that authorities could have paid two political prices to resume cooperation with the IMF: increasing tariffs on gas and heat with the simultaneous compensation of the tariffs to the poorest people and liberation of the hryvnia exchange rate. He said that if the hryvnia weakens by 10-15 percent and the IMF opens its program, pressure on the hryvnia to strengthen would be seen, which could considerably cutting internal interest rates in hryvnias.
“Now they are around 20 percent per annum, and they could fall to 10-12 percent, and this will give a large trigger to the economy. The sooner it is made the more we’ll be able to resume economic growth before the election. Today’s authorities will win from this,” Fiala said.
He said that all currencies of emerging markets have considerably devalued over the past year.
Mazepa also said that the budget situation in Ukraine today is rather complicated: according to the company’s assessments, the discrepancy between the real deficit at the end of the year with the targeted deficit of Hr 50 billion is around Hr 30 billion.
“The whole of Europe over the past three or four years has faced similar problems: the deficit of the budget is up to 5 percent of GDP. This is a working situation and it is amendable. It’s not easy, but one should not panic,” he said.
He said that the increase in tariffs on gas and utilities services and the small devaluation of the hryvnia, which increases the competitiveness of Ukrainian exporters, are realistic and they will allow the resumption of cooperation with the IMF.
“As far as I understand the situation, the deal is being seriously discussed. The question is when this happens, what the devaluation will be, and how the tariffs can be increased,” Mazepa added.
Former economy minister and former head of the NBU Council Petro Poroshenko at the 10th Yalta Annual Meeting supported the opinion that support for international financial organizations will improve the country’s credit rating.
“We should restore cooperation with the IMF, we hope to receive $16 million in loans,” he said.
He added the European Bank for Reconstruction and Development and the World Bank could increase their crediting of Ukraine following the IMF.
He said that in the long-term outlook Ukraine will be able to sharply improve its balance of foreign trade thanks to the reduction of the energy consumption of the economy, which today exceeds the indicators of developed countries by five or six times, and thanks to boosting internal energy extraction and production.
