IMF’s Ukraine Fact-Finding Team to Finish as Early as Tomorrow

The International Monetary Fund team assessing the needs of Ukraine’s economy is likely to complete its work as early as tomorrow, a fund spokesman said.

“The next steps would be for that fact-finding team to make their presentation, their assessment to brief IMF management,” spokesman Gerry Rice told reporters in Washington today. He said the discussions in Kiev made “good progress.”

Rice said he couldn’t give a timetable or amount for a potential loan, though the IMF can respond “fairly quickly.”

“The key is the commitment of the government,” Rice said. “There are indications of a commitment to reform, but again, that’s something that the fact-finding team will be reporting on.”

Ukrainian Prime Minister Arseniy Yatsenyuk yesterday promised to adopt measures needed to steady an economy beset by a plunging currency and widening budget deficits.

“We fully realize that the IMF program is not a sweet candy, but on the other hand, my country desperately needs real reforms to stabilize the Ukrainian economy,” he said in Washington at a forum at the Atlantic Council, a research institute.

The $15 billion IMF loan Ukraine is seeking is key to unblocking aid pledged by the U.S. and the European Union to help stabilize the former Soviet republic after the ouster of its Russian-backed president. The challenge for Yatsenyuk is to convince the IMF it’s serious about overhauling an economy that barely grew in the past two years and tops global rankings of corruption.

Declining Production

The country’s industrial production has fallen for 20 straight months, and energy minister Yuri Prodan said the government faces a 37 percent increase in its bill for Russian natural gas. The economy may shrink by 3 percent this year after failing to grow last year, according to Capital Economics Ltd. in London.

Ukraine’s gross domestic product adjusted for inflation today is at the same level as two decades ago, while that of Romania and Russia grew by 60 percent and Poland by 130 percent, according to Erik Nielsen, chief global economist at UniCredit SpA in London.

The country ranked 144th among 177 nations, tied with Nigeria, in the annual Corruption Perceptions Index compiled by Transparency International, a Berlin-based watchdog.

The IMF made two loans to Ukraine since 2008, each time stopping disbursements after the governments at the time balked at measures they had agreed to carry out. A $15 billion lifeline from Russia gave the country breathing space until the aid was suspended following the toppling of President Viktor Yanukovych, who retained Moscow’s support.

Lagarde’s Meeting

IMF Managing Director Christine Lagarde, after meeting with Yatsenyuk, said she had “a productive discussion” on the policies needed for Ukraine, adding the fund’s team now assessing the country’s economic needs in Kiev. The fund is “keen to help Ukraine on its path to economic stability and prosperity,” she said.

Speaking at the Atlantic Council, Yatsenyuk, 39, said his country is facing “an ongoing economic crisis. ”

Foreign reserves fell to $15.5 billion in February, the lowest in eight years, according to central bank data. The hryvnia has tumbled 12 percent this year, the third-worst performance worldwide after the Argentine peso and the Kazakh tenge.

Ukrainian government debt fell for a sixth day yesterday as the government warned that Russia is amassing troops near its border. The 2014 note dropped 1 percent to 91 cents on the dollar and headed for a record low. The hryvnia was 1.7 percent weaker at 9.38 per dollar.

Crimea Crisis

Russia’s takeover of Crimea, home to its Black Sea Fleet, has sparked the worst crisis with the West since the Cold War as the European Union and the U.S. try to use sanctions to force President Vladimir Putin to retreat.

The IMF has been urging Ukraine to allow a flexible exchange rate, reduce the budget deficit and raise household gas prices to phase out subsidies accounting for 7.5 percent of the country’s economy.

While Yatsenyuk has heralded decisions to cut subsidies and welfare payments and said he’s ready to be “the most unpopular prime minister in the whole history,” his government has already indicated it’s seeking a more lenient approach from the IMF in exchange for the rescue package.

The European Union offered an 11 billion-euro ($15.3 billion) package of loans and grants in coming years, and the U.S. Senate Foreign Relations Committee yesterday approved a bill that would give Ukraine a $1 billion debt guarantee.

The guarantee “is the first real and concrete step to stabilize the situation in my country,” Yatsenyuk told reporters after the committee vote.

A total rescue package led by the IMF between $20 billion and $25 billion will help the country fund its current-account deficit and repay external debt coming due this year, though debt may need to be restructured, according to Capital Economics.

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