Citing Commerzbank AG, the August 23 report reads: The Ukrainian government needs to step up state asset sales and offer some “juicy bits” to investors if it is to meet the budget targets agreed as part of a loan agreement with the International Monetary Fund.
It goes on to quote an emailed note by Ulrich Leuchtmann, a Commerzbank analyst at Frankfurt, who says suggests that the IMF may lose patience or demand progress in other areas of the agreement, including a flexible hryvnia exchange rate.
He says: “Unless it manages to add some ‘juicy bits’ such as the telephone company Ukrtelecom, which seems unlikely, the budget is no longer worth the paper it is written on.” The report says: Ukraine has received 416.3 million hryvnia ($52.7 million) from selling state assets this year, or less than 7 percent of its 6.5 billion hryvnia goal for 2010, the Kiev-based state property fund said on its website on Aug. 21.
The report continues: Ukrtelecom has a market value of 11.2 billion hryvnia. The government also plans to sell ammonia producer Odeskyi Pryportovyi Zavod. The sales may not occur until next year, Oleksandr Ryabchenko, head of the property fund, said last month.
Again, this is not my understanding of the likely IMF response.
The Fund agreed to the government’s decision to reduce the target for privatizations (cut by 70%) in 2010, and indeed seem pretty relaxed/realistic about likely receipts from state asset sales; they recognize that the global environment for such sales is likely to be muted, limiting the cash return and encouraging a delay in such sales. I doubt that this is going to prove a deal breaker for the IMF. More important issues for the IMF will likely be continued progress in banking sector restructuring (closing banks where existing holders prove unable/unwilling to recapitalize), energy sector reform (e.g. continuing with energy sector price hikes) and herein progress is proving pretty encouraging.
Timothy Ash is the Head of Emerging Markets Research at the Royal Bank of Scotland.
