IMF ready to act on Ukraine

February 28, 2014 - 5:39:05 am

WASHINGTON: The International Monetary Fund yesterday said it would send a fact-finding team to Ukraine next week in response to Kiev’s request for support after the ouster of President Viktor Yanukovich.

IMF Managing Director Christine Lagarde said the IMF and its international partners were discussing how to help Ukraine, which says it needs $35bn over two years to avoid bankruptcy.

German Foreign Minister Frank-Walter Steinmeier will visit the Washington-based IMF today to discuss Ukraine, IMF spokesman Gerry Rice said.

The IMF team being sent to Kiev will have preliminary talks with authorities there, Lagarde said. “This will enable the IMF to make its usual technical, independent assessment of the economic situation in Ukraine and, at the same time, begin to discuss with the authorities the policy reforms that could form the basis of a Fund-supported programme,” Lagarde said in a statement.

Rice said it would be premature to specify what conditions Ukraine would be required to follow in order to get an IMF bailout, or how much money the IMF would be prepared to give. “Broadly, we would expect that the main elements of that Article 4 would remain valid,” he told reporters, referring to the IMF’s last analysis of Ukraine’s economy in October.

In that analysis, the Fund urged Ukraine to raise gas prices for domestic consumers and introduce a flexible exchange rate for the hryvnia currency — both unpopular steps previously rejected by the Kiev government. 

The key question is whether Ukraine’s new leaders are more likely to agree to difficult economic changes than the former leaders. Rice declined to comment on how Ukraine’s political situation may affect the IMF’s conditions. “Obviously that’s a question for the Ukrainian authorities I think, more than for me,” he said. “Of course the ownership of the programme, the commitment to the programme, the capacity to implement the programme, are all considerations that we take into account.”

The IMF’s team next week will be led by Nikolay Gueorguiev, the deputy head of the Fund’s European Department. The head of that department, Reza Moghadam, will also join at some point, Rice said.

Meanwhile, Ukraine’s currency plunged seven percent to a record low yesterday on deepening uncertainty fuelled by Russian military exercises and pro-Kremlin gunmen grabbing government buildings in the separatist-minded Crimean peninsula.

The hryvnia was trading for more than 11 to the dollar during the day, having smashed through the technical barrier of 10 to the dollar on Wednesday. It has lost nearly 20 percent of its value since the beginning of this year.

Default on its debt is a real possibility. Private and public debt tops $66bn. The country owes $13bn in state debt payments this year — a massive sum in a country where central bank reserves have shrunk to less than $18bn.

The concerns are spilling over into Russia’s ruble, which was already under pressure from a general sell-off of emerging market currencies. The ruble was just above its record low hit on Wednesday against the euro, trading yesterday at 49.90. It was at a five-year low against the dollar at 36.25 rubles to the greenback.