Ukraine’s $17bn loan plan faces risks: IMF

May 02, 2014 - 12:12:27 am

WASHINGTON: Ukraine’s $17bn bailout programme from the International Monetary Fund faces geopolitical and implementation risks, the IMF chief said.

“On the implementation front, we are taking all the precautions we can in order to mitigate those risks,” IMF Managing Director Christine Lagarde (pictured) told reporters. “On the geopolitical front, clearly the bilateral international support, and the cooperation of all parties, will be extremely helpful to reinforce the position of the economy of Ukraine.” 

Meanwhile, IMF’s official report on the emergency loan, released yesterday, concedes that there are deep risks to its successful implementation, including the quickly eroding economy, corruption, and the current and future government’s ability to implement much-needed reforms.

“Ukraine — and the authorities’ programme — is facing unprecedented risks,” the report admits. “Traditionally, policy implementation risks have been significant in Ukraine, and the issue may resurface with the coming presidential elections in May 2014. In the same vein, vested interests could be expected to resist governance reforms.” Moreover, it added, “Should the central government lose effective control over the East, the program will need to be re-designed.” The highly industrialised eastern region is crucial to the country’s economy, the three provinces of Donetsk, Lugansk, and Kharkiv accounting for about 21.5 percent of GDP and 30 percent of total industrial production.

The IMF programme is part of a larger $27bn deal involving loans from the World Bank and the European Union aimed at strengthening the country under the its new pro-Western government.

But the Fund’s report makes clear that if the government loses control of the east, it would further erode Kiev’s finances and damage Ukraine’s ability to attract investment. That could mean that the country would have to raise even money from donors, it said.

On the other hand, the report says, the loss of Crimea to Russia — which is not recognised by the West or other major powers — does not have a significant impact to the government’s needs. Agencies

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