IMF halts loan installment, emergency mission travels to Kyiv to negotiate (04/14/96)

IMF halts loan installment, emergency mission travels to Kyiv to negotiate

by Marta Kolomayets
Kyiv Press Bureau

KYIV - An emergency mission from the International Monetary Fund arrived in Kyiv on April 9 to negotiate a new stand-by loan agreement after the initial $1.5 billion (U.S.) credit had expired on April 6.

The Ukrainian government, which had received almost $800 million (U.S.) of the stand-by loan in 1995, had expected another $900 million in 1996. It was waiting for the release of the fourth tranche of the loan - $100 million - sometime in April, but, the Financial Times reported on April 8 that Ukraine had overshot its spending target in the first quarter of 1996 and the IMF had halted the release of these funds.

The emergency IMF mission, headed by Adelbert Knobl, began negotiations with Deputy Prime Ministers Viktor Pynzenyk and Roman Shpek on an entirely new stand-by program of $900 million.

This amount had been earmarked by IMF Chairman Michel Camdessus in discussions with President Leonid Kuchma and Ukraine's top government officials during meetings in Washington in February of this year, and Ukraine had expected $100 million a month for the next nine months.

At that time, with U.S. assurances, IMF funding was increased from $1.5 billion to $1.7 billion, and the international financial institution also promised to negotiate a program with Ukraine to run until the end of the century.

However, the surprise decision by the IMF to hold back on the fourth tranche - this is the second time it has been delayed - has discouraged the Ukrainian government's financial officials. The program had been suspended in January by the IMF when the 1995 budget was passed with a larger than expected budget deficit of 7.3 percent.

Reformers pressed hard for the Ukrainian Parliament, which still has a solid bloc of left-wingers, to pass a 1996 budget by April. It did so on March 22, in the hope that this would pave the way for the release of IMF credits. The budget includes a deficit of 6.2 percent, two-tenths higher than what the IMF had proposed, and an inflation rate of 40 percent, as compared to 183 percent last year.

The IMF also expressed concern that Ukraine had exceeded its spending promises for the first quarter by about $57 million (U.S.), or roughly 1 percent of the gross domestic product for that quarter.

Anders Aslund, a Swedish economist and adviser to the Ukrainian government, told the Financial Times that the excess spending was "an accident" caused by poor financial management. "They will now have to restrict fiscal and monetary policy further. They have no choice," said Mr. Aslund.

Alex Sundakov, the IMF's representative in Kyiv, said the decision to hold back on the fourth tranche was prompted by Ukraine's failure to submit documentation for extension of the loan before it expired, reported Interfax-Ukraine on April 9.

However, Oleh Hawrylyshyn, Ukraine's representative to the IMF, told Interfax-Ukraine on April 10 that he hopes there will be no change in funding the program.

He said the IMF's program for aid to Ukraine within the framework of the stand-by program would be continued and that the IMF board of directors would probably make a decision sometime in May and perhaps disburse a new tranche at that time.

Interfax-Ukraine reported that the problems of releasing the fourth tranche were of an "organizational character."

A Ukrainian government source said the parameters of the program in the banking and budgetary fields are being delineated during ongoing negotiations with the IMF.

"We are confident that we have complied with the parameters of the program, yet, technically it is quite difficult to prove, since in Ukraine, up until now, an absolute system of budgetary accounting was used. And, this is a great impediment," said the source, who did not wish to be identified.

Viktor Yushchenko, governor of the National Bank of Ukraine, who is accompanying President Kuchma on a state visit to Indonesia, said Ukraine and the IMF use two different techniques in calculating the deficit and executing the budget.

"The meeting of the IMF mission in Kyiv is designed to yield total agreement on the parameters," he told Interfax-Ukraine. He added that Ukraine needs to make progress in the budgetary sphere.

Despite this setback, Ukraine's reformers have said they are committed to economic reforms - no matter how difficult.

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