FOR THE RECORD: NBU statement on allegations of abuse of IMF loans (03/26/00)

FOR THE RECORD

NBU statement on allegations of abuse of IMF loans

In view of the campaign of allegations organized by foreign mass media about the abuse of International Monetary Fund (IMF) loans by Ukraine, the press service of the National Bank of Ukraine (NBU) is authorized to declare the following. (The statement was released by the Embassy of Ukraine in the United States.)

The loans received by Ukraine from the International Monetary Fund were used solely for the purposes they had been directed to, namely: to support the balance of payments, to repay external debts of the country and the NBU, and for interventions on the domestic market to stabilize the currency exchange rate.

The balance of the receipts from the International Monetary Fund and the expenditures covering only the external debt repayment is evidence of the fact that during the entire period of cooperation, in 1995-1999, Ukraine repaid $7.17 billion, having borrowed from the International Monetary Fund $3.1 billion. In other words, IMF loans covered less than half of Ukraine's expenditures to carry out its external obligations. The difference ($4.07 billion) was mobilized through currency purchase on the domestic market and external private borrowings.

In particular, in 1997 the IMF granted loans to Ukraine in the amount of $282 million, while Ukraine paid $1.18 billion as total external debt service payments. Hence, $906 million were attracted due to the intervention on the domestic market and placement of external private loans.

Thus, both during the whole period and each year, in particular in December 1997, expenditures to service the external debt of Ukraine exceeded considerably the loans received by Ukraine from the IMF, which is evidence of the stipulated use of these loans by Ukraine.

Moreover, the IMF funds were channeled to Ukraine through the NBU account with the U.S. Federal Reserve System, which also rules out the possibility of abuses and ensures the complete transparency of the flow of money.

Transactions on the management of foreign exchange reserves have been and are carried out by the National Bank of Ukraine according to the scheme universally accepted in the world and in the operative mode using international specialized banking systems; they were not connected with receipt of any private or political benefits.

In 1997, when, due to the inflow of foreign capital, Ukrainian reserves had considerably increased, some long-term deposits were placed with foreign banks under separate agreements secured by the pledge of the 1995 Foreign Currency Government Bonds. These bonds were not repurchased by Ukraine but were accepted as collateral from non-resident banks in order to secure the return of the deposits. All the transactions were completed in full-scale; the deposits and income thereon were returned to Ukraine, and the bonds to their owners. Such transactions were recorded in books; they were transparent and exposed to international audit.

It is essential to point out that one of the reasons for the misunderstanding was the fact that, up to early 1998, the banking system of Ukraine had been using the accounting standards of the former Soviet Union, which differed considerably from those applied by the International Monetary Fund. Starting from 1998, the NBU implemented international accounting standards and quarterly international audits. Thus, the possibility for the illegal use of funds is absolutely excluded.

In response to the allegations published in some foreign mass media, the National Bank of Ukraine asked PricewaterhouseCoopers, the renowned international auditing company, to check the NBU's transactions with its foreign exchange reserves carried out in December 1997. This audit confirmed that in December 1997 the NBU did not conduct the transactions, which by their volume or nature resembled those mentioned in the publications and therefore the allegations appeared to have no ground.

At the same time, going beyond the transactions of December 1997, the NBU, with the consent of the IMF, decided to conduct a more comprehensive audit of transactions with foreign exchange reserves. The first stage of auditing will include the period from July 1997 to January 1998. It is to be completed by the end of March or in early April. Its results will be made public. The second stage will cover a longer interval and will be executed upon the completion of the first stage. In order to ensure a reliable audit, the National Bank of Ukraine has forwarded permission for its 27 bank partners to disclose to auditors any information concerning their relations with the NBU for the period under review.

Therefore, the National Bank of Ukraine confirms its commitment to an open and transparent policy in financial and monetary relations with its creditors.

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