IMF informs Kyiv it may soon resume credit program (09/17/00)

IMF informs Kyiv it may soon resume credit program

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Recent statements by the executive board of the International Monetary Fund and the head of the current mission to Ukraine have raised expectations that the International Monetary Fund soon may resume its crediting program with Ukraine after a lengthy suspension.

The IMF suspended credit disbursements in December 1999 while it reviewed allegations of financial misappropriations and reporting improprieties against the country's central bank that allowed it to receive millions of dollars in badly needed credit.

The Ukrainian government has spent the last nine months defending itself against the charges, which first came to light in the British newspaper The Financial Times. A December 1999 story accused the National Bank of Ukraine of dubious financial manipulations of its foreign currency reserves in order to secure credits for the country's beleaguered budget. It also suggested that IMF money was invested in shady and perhaps illegal investment schemes from which private individuals might have profited.

After several audits and months of discussion at the highest levels between Ukrainian government officials and executives of the international financial organization - during which the IMF delayed credit disbursements that Ukraine had expected - the IMF's executive board issued a statement on September 6 that has raised the hopes of Ukrainian officials that normal relations will resume shortly.

The IMF announced that it had found no evidence of misappropriation of Ukraine's currency reserves. However, it called on Ukrainian authorities "to undertake serious remedial measures" because of "serious and repetitive instances of misreporting."

The IMF executive board said that Ukraine had overstated the value of its net international reserves from November 1996 through January 1997, which allowed the country to receive three extended fund facility (EFF) credit tranches that otherwise would not have been extended. The IMF listed two tranches worth a total of $95 million, issued on December 29, 1997, and February 2, 1998, and another one worth an additional $95 million issued on December 1, 1997.

The executive board's decision was based on three independent audits conducted by the international firm PricewaterhouseCoopers and a separate IMF study on NBU operations for the years 1996-1997, which showed that though the NBU had used unorthodox and inappropriate procedures in calculating its foreign currency reserves through 1998, it had not invested IMF funds in illegal schemes. A third audit for 1998 found neither misreporting nor misappropriations.

In the statement the directors welcomed an acknowledgement by Ukrainian officials of the IMF findings and a commitment to prevent a reoccurrence of similar problems. Also, they commended the NBU for voluntarily returning $95 million to the IMF in August to compensate for the inappropriately received tranches.

The executive board said it would continue to audit the NBU reserves on a quarterly basis and emphasized that Ukrainian authorities must refrain from undertaking transactions that could impair the liquidity of the reserves.

The positive assessment, which came days before the arrival of an IMF mission to review Ukraine's current financial and economic picture, led Prime Minister Viktor Yuschenko to state in an interview with the Kyiv newspaper Dzerkalo Nedeli on September 9 that he is "absolutely optimistic" that financing soon will begin anew.

"What both Ukraine and the IMF have aspired to has been achieved," explained the prime minister. "We have found a way to turn the page, to do away with the past and focus on the development of future relations. We have settled the long-standing problem, both professionally and, most likely, politically," he added.

Mr. Yuschenko explained that, most importantly, the series of audits supported NBU assertions that it had properly used its reserves. He said the IMF assessment cast off allegations that the bank's policies were non-transparent and that it worked against the interests of the country.

The IMF mission head, Deputy Director for Europe Julian Berengaut, further raised the expectations of Ukrainian officials when he gave a favorable assessment of the Cabinet of Ministers draft budget for 2001 on September 11, the first day of an 11-day stay in the nation's capital. Mr. Berengaut called the budget "professionally prepared," according to Ukraine's First Vice Prime Minister Yurii Yekhanurov.

Ukraine had counted on $1.3 billion in foreign credits, much of it from the IMF, for fiscal year 2000 to finance its international debt and balance its budget. With no money forthcoming, the government last week directed its ministries to plan for 5 percent cuts in outlays for the rest of the year. If the IMF decides soon that it will resume the credit program with Ukraine, the country could forego the cuts.

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