Ukraine Bailout Set to Be Unlocked in June

  • Loan funds could arrive days later, though hryvnia won’t gain
  • Deputy Governor Oleg Churiy speaks in interview in Kiev

Ukraine’s stalled $17.5 billion bailout will probably be unlocked at the end of next month, though the national currency is unlikely to benefit as capital controls will also be relaxed, according to the deputy central bank governor in charge of foreign-exchange policy.

A third $1.7 billion disbursement, held up for eight months because of wrangling over the budget and political turmoil that ushered in a new prime minister, is possible days after approval from the International Monetary Fund, Oleg Churiy said in an interview. Ukraine hasn’t discussed combining the third and fourth payments of the rescue loan, he said.

“If all issues are resolved, the IMF board decision could come in late June,” Churiy said Monday in his office in Kiev. “The tranche could then arrive within a few days.”

Faced with a fragile economic recovery and anger over the slow pace of reforms, Prime Minister Volodymyr Hroisman has made resuming cooperation with the Washington-based lender a priority. Parliament is starting this week to debate 19 laws required by the IMF, including bills on privatization and regulation. Restarting the loan will help release billions of dollars more in aid from allies such as the U.S. and the European Union.

IMF Mission

An IMF mission that arrived May 10 in Kiev to review the government’s policies before the next tranche can be disbursed completed its visit Wednesday, the Finance Ministry said.

Having fretted at bailout delays, April’s government revamp renewed optimism among investors that Ukraine can smooth ties with the IMF. The hryvnia has advanced 1.5 percent against the dollar since Hroisman’s appointment, while yields on government dollar debt due 2019 have fallen 26 basis points, data compiled by Bloomberg show.

The hryvnia probably won’t strengthen as a result of the IMF cash, according to Churiy. Price volatility for commodities such as steel, one of Ukraine’s biggest exports, as well as the continued, gradual rollback of capital controls will prevent gains, he said.

“Lifting restrictions will push demand for foreign currency in Ukraine up and supply down,” Churiy said. “That’s why one can’t say that if everything’s alright with funds from international donors, there’ll be a certain hryvnia-appreciation trend.”

Rate Cuts

The strictest capital controls were imposed last year at the height of Ukraine’s currency crisis. The next measures to be rescinded include allowing foreign investors to repatriate dividends, and possibly direct investments, according to Churiy.

“We’ve already agreed on that with the fund,” he said. “We’ll lift restrictions carefully, taking into account the market effect of the previous measures.”

Macroeconomic stabilization and fluctuations in the balance of payments will also dictate the pace capital controls can be unwound, Churiy said. He reiterated central bank plans to continue trimming the benchmark interest rate from 19 percent as long as inflation eases and this year’s 12 percent target is met. The bank’s monetary-policy committee decides on rates next week.

“At our meetings with banks, we speak without disguise about cutting the discount rate as inflation slows,” Churiy said.

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