Ukrainian delegation visiting Washington learns IMF will not renew credits at this time (08/13/00)

Ukrainian delegation visiting Washington learns IMF will not renew credits at this time

by Yaro Bihun
Special to The Ukrainian Weekly

WASHINGTON - Following the latest series of talks here between a high-level Ukrainian delegation and the International Monetary Fund, Ukraine does not expect to see the renewal of IMF credits for another few months at least.

Ukraine's First Vice Prime Minister Yurii Yekhanurov came here on August 1-4 to press the case for renewing the $2.6 billion lending program the IMF placed on hold a year ago after it learned that the National Bank of Ukraine (NBU) was not accurately reporting its foreign reserves.

Mr. Yekhanurov and the other members of his delegation, which included Finance Minister Ihor Mitiukov and NBU Director Volodymyr Stelmakh, also had meetings with representatives of the World Bank and the U.S. government.

Summarizing his talks at a news conference on the last day of his visit here, Mr. Yekhanurov listed three major accomplishments:

Ukraine reached an agreement with the IMF about this year's budget. "We do not have any misunderstandings on this issue."

"We are close to laying to rest" the issues relating to IMF audits of NBU transactions and reports.

He had successful talks with the World Bank to outline a strategy for its lending program for the next three years. It will be a "flexible" credit program, he said, with the amounts varying in accordance with the pace of reforms in Ukraine.

On the major issue of renewing IMF credits, Mr. Yekhanurov said the final decision will come following another IMF fact-finding mission to Ukraine in September and two IMF board of directors' meetings: one on August 28, on the results of the two NBU audits; and the other sometime in October, on Ukraine's performance in adhering to the 11 economic reform conditions set out in the IMF Extended Fund Facility credit agreement.

As for the audit decision, Mr. Yekhanurov pointed out that the independent auditors stated that, while the reporting may have been off the mark, no funds were found to be misused or stolen.

"At that time we were still using old Soviet accounting methods, and that really was the problem," he explained.

On the basis of these inaccurate reports, Ukraine was able to obtain IMF credits it otherwise would not have received. The amount of these improperly received credits was initially reported as $200 million. Mr. Yekhanurov said that more recent estimates are close to $100 million. He did not indicate whether Ukraine is expected to return that sum to the IMF.

As for Ukraine's adherence to conditions of the credit agreement, Mr. Yekhanurov said the IMF will be focusing on the two major points the IMF underscored in a brief statement following his meeting with IMF Managing Director Horst Koehler on August 3: "... continued prudent monetary and fiscal policies, coupled with strengthened financial sector and structural reforms. ..."

The IMF statement also called on President Leonid Kuchma's administration "to implement a strong reform program, which is important for a lasting recovery of the economy and an improvement in standards of living in Ukraine."

Mr. Yekhanurov said that there were other points that still need attention, but added that in its present make-up, with 270 of the 450 deputies supporting the government, the Verkhovna Rada is cooperating with the government in passing necessary reform legislation. "In other words, a lot of constructive work is being done - for the first time in the history of Ukraine," he said.

Among the items raised during Mr. Yekhanurov's talks here was President Kuchma's recent decree establishing greater government control over the domestic grain market, which has been criticized by the international lending institutions and the U.S. government as a step backward in reforming Ukraine's economy.

"We're still insisting that this is the introduction of heavy-handed intervention of the government into the market," was the reaction of the chief of the Ukrainian office of the World Bank, Gregory Jedrzejczak. "They say it's not."

As a result, Mr. Yekhanurov said, Ukraine, the World Bank and the U.S. Agency for International Development agreed to establish a committee of experts to study the effects of this decree.

Mr. Yekhanurov stressed that Prime Minister Viktor Yuschenko's government has made great strides in reforming the country's economy. And it has done so, he said, while borrowing "not a penny" from international public and private lending institutions. Indeed, he added, it has cut back its foreign debt by some $500 million.

"If one had to characterize our government, it would be that it was the first to start bringing down the country's foreign debt as well as the first to pay out pension arrears."

"Ukraine is reforming its economy on its own, but with even a small amount of external financing, the pace of reforms would increase greatly, and we would then be able to solve a number of outstanding social problems," he said.

Mr. Yekhanurov said he was not disappointed that no decisions were announced during his talks here. "We understand that important issues are not decided during one visit," he said.

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