International Monetary Fund delays extended loan to Ukraine (07/20/97)

International Monetary Fund delays extended loan to Ukraine

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The International Monetary Fund has decided not to grant Ukraine an extended loan of between $2.7 billion and $2.9 billion at the present time because the government has not met several agreed-upon conditions - not the least of which is passage of a realistic budget. The international financial organization will, however, begin negotiating another stand-by loan with Ukraine.

An IMF official in its Ukraine office explained on July 15 that the budget passed by the Verkhovna Rada diverges from the original because it does not meet the requirements and guidelines agreed to by the government in earlier negotiations.

"The budget is not fully consistent with what we agreed," explained the official, who did not wish to be identified. "Parliament changed the numbers against the will of the government. The other problems are relatively minor."

In the six-month budgetary battle between President Leonid Kuchma and the leftist-leaning Verkhovna Rada, the major confrontation was over a restructured tax system, which the Verkhovna Rada failed to fully pass. Without the hoped-for added revenues and with additional expenditures for social expenditures tacked on, the budget came in at a larger than expected 5.7 billion hryvni.

The national deputies endorsed a revenue package that gives the government 22.4 billion hrv and approved budget outlays of 28.1 billion hrv. Although the planned deficit is only 5.7 percent against the gross domestic product, it is 20.3 percent against government expenditures.

The IMF official in Kyiv emphasized that the Extended Fund Facility (EFF) loan had not been denied, but merely delayed. "We are still aiming for the EFF. There were two options: wait for the conditions to be met or negotiate another stand-by loan until conditions are met." He said the IMF is pleased that inflation remains low and that the exchange rate has stabilized.

The deputy head of the presidential administration, Anatolii Halchynskyi, said the option to pursue another stand-by loan was proposed by U.S. Vice-President Al Gore in a letter to President Kuchma. Mr. Halchynskyi said the stand-by loan could reach $750 million, although the IMF official said that no numbers had been discussed.

"The amount will be decided by the board [of the IMF in Washington]," said the official. He added that negotiations on the stand-by loan are to begin at the end of the month. That loan could be approved by the end of August.

Without it, Ukraine will have trouble maintaining its current budget outlays unless there are further monetary emissions from the National Bank of Ukraine, which would bring back a spiraling inflation rate. One of the IMF's key requirements calls for a revamping of the tax collection system, along with a restructuring of taxes to make the business environment more investor-friendly. During the past year Ukraine collected merely 15 percent of revenues.

Mr. Halchynskyi, who was part of a Ukrainian delegation that met in Kyiv with Richard Morningstar, special advisor to U.S. President Bill Clinton on CIS matters, to discuss the state of reforms in Ukraine, said that Ukraine's government wants the IMF to take a "different approach" in the way it analyzes Ukraine's movement in economic reform. "At present, the population of Ukraine repays around 80 percent of the costs of housing and utilities," explained Mr. Halchynskyi, while the population of Russia pays a mere 27 percent. Yet Russia still gets aid from financial organizations."

The IMF has demanded that Ukraine reduce its subsidization of housing and utilities as a requirement for the EFF loan.

He said that he would like to see numbers shifted because Ukraine made "methodological mistakes" in the original economic figures it had proposed to the IMF. He said the figures were aberrations that did not express Ukraine's true economic condition. As an example he cited a possible inflation figure for 1997 of 13 to 15 percent, which would be much lower than the expected 24 percent, but would also give Ukraine a lower than expected GDP for 1997.

President Kuchma, attending a Central and Eastern European economic summit, told Interfax-Ukraine on July 10 that he had discussed the IMF loan with President Clinton during NATO's Madrid summit and that he was disturbed that although Ukraine had held to the IMF parameters for 1997, it still had not received any IMF money. He admitted that "miscalculations in economic decisions" had been made, but added that sufficient economic stability had been reached, that the country is servicing its foreign debt on schedule and inflation is at a record low.

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