Thursday, May 12, 2016

Mission impossible. The IMF will again try to save Ukraine from economic disaster

Mission impossible. The IMF will again try to save Ukraine from economic disaster

IMF Director Christine Lagarde and the President of Ukraine Petro Poroshenko
In the next week, the international monetary Fund (IMF) will review the government of Ukraine, led by Volodymyr Hroisman. The organization is interested in how the country progress made on structural reforms. If the representatives of the IMF will be satisfied, the program will support $ 17.5 billion will be unfrozen.

The magician in the blue helicopter

In Kiev again came to the IMF mission. Until may 18 the delegation will carry out verification of the new government Volodymyr Groysman. The Fund is interested in how the Ukrainian authorities succeeded in structural reforms. From the verdict of the mission depends on the fate of the programme for financial support of the country. At stake is nearly $ 11 billion.
The total amount of so-called extended system of credit (Extended Fund Facility, or simply EFF) — 17.5 billion dollars. In 2015, Ukraine received from the IMF, 6.7 billion dollars in two tranches of $ 5 billion and 1.7 billion respectively. It was expected that in the past year, the Fund will allocate two tranches of $ 1.7 billion, but the program actually froze.
The stumbling block is unsatisfactory, according to the IMF, the results of the reforms. The managing Director of the Fund Christine Lagarde lamented the fact that Ukraine has not achieved serious success on the way of transformation. "I was concerned about the slow progress in improving governance and combating corruption in Ukraine", — said Lagarde, noting that in such circumstances "it is difficult to assume whether the support programme of the IMF to continue to be successful." The head of the Fund also warned that Ukraine risks becoming a failed economic policy sample.
One more thing. In March, the international monetary Fund has linked the provision of the next tranche to Kiev with a bona fide settlement of a debt dispute with Moscow. Recall, Ukraine has made a technical default on the loan for $ 3 billion (plus a few tens of millions of dollars per cent), issued by Russia in December 2013. The parties are trying to resolve this issue in the High court of London. Of course, for the IMF, he not the key. But, according to the official representative of the Fund Jerry rice, it will take into account when deciding on further financing of Ukraine.
The Cabinet of Ministers Volodymyr Groysman will have to prove its commitment to reforms
The Cabinet of Ministers Volodymyr Groysman will have to prove its commitment to reforms
Public administration reform, economic liberalization, the Russian loan are the main concerns of the IMF. And in the next week, the organization must ensure that Kiev is really going to solve them. However, some conditions Fund the country had already implemented. Ukraine has approached the current financial and economic realities, which inevitably led to the decline in living standards.

Not fit into the market

One of the most important issues — the adoption of the budget and satisfy the IMF. Under strong pressure — and the Fund threatened to collapse the support program — Kiev was forced to endorse the rather strict financial document. It is based on tax reform.
Innovations, in particular, provide for a 15 percent tax on pensions if the amount exceeds three minimum wages (3 thousand 990 hryvnias, or 10.4 thousand rubles at the exchange rate on 11 may). Personal income tax rate set on a uniform level of 18 per cent instead of the previous range of 15 percent to 20 percent (determined depending on income level). In addition, the IMF introduced a threshold in the 3.7 percent of GDP for the budget deficit. The parameters of the state Treasury 2016 fit into this limitation.
The budget was adopted even in the previous government, headed by Arseniy Yatsenyuk. His successor, Volodymyr Groysman also had to be noted by the reforms for the IMF money. So, from may 1, gas tariffs for the population were doubled. From 1 July the cost of hot water and heating will also raise nearly two times.
One of the requirements of the IMF — the increase in the cost of utilities. Photo: the rally of the Federation of trade unions of Ukraine against the new tariff policy
One of the requirements of the IMF — the increase in the cost of utilities. Photo: the rally of the Federation of trade unions of Ukraine against the new tariff policy
The Ukrainian authorities hope that financial tightening will help them to obtain the Fund. The President of Ukraine Petro Poroshenko expects that the IMF will give the country $ 7 billion. And the new Finance Minister Oleksandr danylyuk is sure that by 18 may the organization will make a positive decision on the programme of support.

The deferred money

Experts interviewed "Tape.<url>, also believe that the IMF will not leave Ukraine. No other organization will not be able to identify the country needs for economic stabilization funds. On the other hand, the Fund does not intend to soften the requirements. To get an even $ 11 billion, Kiev will have to go the way of reforms until the very end. Also have to solve the debt dispute with Russia.
Financial analyst group of companies "Finam" Timur Nigmatullin believes that the probability of the collapse of the program of assistance is extremely low. "Formally, the country is consistently carrying out the necessary reforms that is put forward as a requirement for the next tranche. However, even a possible temporary difficulties in the transformations of the unlikely to change the position of the IMF, as this process is heavily politicized," he explains.
The expert reminds that Russia's quota in the IMF amounts to 2.7 percent. Those who imposed sanctions against Russia, EU-15 countries and the United States, in control of the Fund. They account for about 30.3 and 17.1 percent, respectively. According to Timur Nigmatullin, without external support Ukraine's economy is doomed to long-term stagnation due to an unbalanced budget with excessively high social costs. "To maintain the country's leadership will have to maintain a high fiscal burden on business that will limit its desire to invest in fixed capital", — he said in an interview with "Tape.ru".
"There is no doubt that the program of support of Ukraine from the IMF will continue, as, in fact, it is the only source of funding for countries on the brink of default," — emphasizes the Director of development investment company QBF Margarita Gorsheneva. She noted that the national debt of Ukraine exceeds $ 65 billion. In addition, now in London viewed the Russian claim on sovereign debt in 3 billion dollars. Thus, Kyiv should not count on receiving funds from sources other than the IMF.
Margarita Gorshenev believes that the mission of the Foundation will decide to postpone the payment of the next tranche of the reform is behind schedule, and IMF representatives easily able to detect it. "I don't think the IMF will make concessions and soften their demands — he has every reason to act from a position of strength", she concluded.

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