Economic advisor warns of consequences if Ukraine fails to receive IMF funding (06/21/98)

Economic advisor warns of consequences if Ukraine fails to receive IMF funding

by Roman Woronowycz
Kyiv Press Bureau

KYIV - A leading international economist said on June 15 that if Ukraine is denied a new loan program by the International Monetary Fund, the country would be left in dire financial straits.

Jeffrey Sachs, the noted Harvard University professor and leading economic advisor for economic reform to many countries in transition from communism to open markets, said in Kyiv that failure to qualify for the IMF extended fund facility of some $2.5 billion would leave Ukraine in a "sorry" state.

"The financial situation in this country and the problems facing the government are very intricate, and it is going to be extremely difficult to draw other funds given the situation that has emerged on the international markets," said Mr. Sachs.

The university professor spoke the same day that an IMF negotiating team arrived in Kyiv to review to what extent Kyiv has fulfilled conditions of the loan. The team headed by IMF Ukraine Director Mohammad Shadman-Valavi is to discuss questions linked to the drafting of a mid-term economic reform program to be supported by an extended fund facility loan.

After having been denied two stand-by loans valued at nearly half a million dollars earlier this year, Ukraine has abandoned that tactic and made a total effort to qualify for the extended fund facility.

Mr. Sachs, however, said the country will have trouble meeting the 87 requirements that the IMF has listed, and that the monetary fund should ease its conditions. "Both sides should be highly realistic and endorse a workable program, said Mr. Sachs.

The IMF has withheld money that this financially strapped country of 50.9 million desperately needs because it is not moving on economic reform at the speed the international bank would like. Ukraine has told the IMF that it has fulfilled all the conditions that it can at this point.

"Those measures that are in the government's sphere of competence have already been passed or will be passed very soon," said Ukraine's Finance Minister Yurii Mitiukov at a press conference on June 12.

In attempting to meet a primary condition, last month President Leonid Kuchma ordered that the budget deficit be slashed from 3.3 percent to 2.5 percent.

But the IMF has criticized Ukraine for not doing enough in other areas and has told the government it needs to speed up transparent, large-scale privatization and structural reforms.

Meanwhile, Ukraine has turned to the European market and is buying money at short-term interest rates some experts say exceed 40 percent in order to meet its financial shortfall.

Last year it also started to sell large volumes of high-yield government securities. In June alone, it will have to have $500 million on hand to make redemption payments on the first of these treasury bills. Ukraine has now turned to Eurobonds to cover those costs, according to the Kyiv Post.

Mr. Sachs said that IMF negotiators should develop a realistic program for Ukraine with workable goals and deadlines.

He also said the Kuchma administration must work with the Verkhovna Rada to develop attainable objectives before meeting with IMF negotiators because in the past talks have stalled over divergent viewpoints between these two branches of power.

At the moment, that problem does not exist, explained Finance Minister Mitiukov at his press conference, because the Verkhovna Rada is deadlocked over its inability to choose a chairman. "There are a great many decisions that Parliament, which has not yet begun its work, has to make, and that could hold up the implementation of the project and the arrival of funds," said Mr. Mitiukov.

President Kuchma, who has said he is ready to work with any Parliament chairman who is chosen, whether from the left or right, has suggested that he is fed up with the stalemate. As The Weekly was going to press, the presidential administration press service said that Mr. Kuchma had scheduled a nationally televised address on the Verkhovna Rada situation for the evening.