Lagarde Says Ukraine Must Reform or Risk IMF Program Failing

  • It's `vital' that country's leaders act now, IMF chief says
  • Government's 2019 bonds head for worst week since being issued

IMF Managing Director Christine Lagarde.

Photographer: Luke MacGregor/Bloomberg

The head of the International Monetary Fund raised the pressure on Ukraine’s leaders, saying the country’s $17.5 billion bailout program risks failure unless they kick start an overhaul of the economy and fulfill pledges to combat graft.

“Without a substantial new effort to invigorate governance reforms and fight corruption, it’s hard to see how the IMF-supported program can continue and be successful,” Managing Director Christine Lagarde said Wednesday in a statement. “Ukraine risks a return to the pattern of failed economic policies that’s plagued its recent history. It’s vital that Ukraine’s leadership acts now to put the country back on a promising path of reform.”

QuickTake Ukraine's Other War

President Petro Poroshenko and his government have seen their ratings tumble amid disappointment at the pace of reform after Ukrainians toppled the former Soviet republic’s pro-Russian leader in 2014 demanding a more transparent state. Frustration within the ruling coalition, which is also still tackling a pro-Russian insurgency in the nation’s east, boiled over last week when reform-minded Economy Minister Aivaras Abromavicius quit, alleging officials from Poroshenko’s party were corrupt.

Bonds Sink

Ukrainian government debt reversed earlier gains after Lagarde’s comments, with the yield on notes maturing in 2019 jumping 47 basis points to 12.62 percent. The bond was headed for its worst week since being issued in November as part of a $15 billion restructuring. Ukrainian dollar debt has handed investors an 8.2 percent loss this month, the most among 61 countries in the Bloomberg Emerging-Market Sovereign Bond Index.

Poroshenko told Lagarde in a phone call later on Wednesday that Ukraine will continue reforms, stressing his “willingness to carry out decisive actions to ensure political and financial stability in the state,” according to a statement from his office. Lagarde said she and Poroshenko “agreed on the principle of a road map of actions and priority measures to ensure prompt progress under the program,” according to the IMF.

The resignation of Abromavicius, 40, a Lithuanian-born former fund manager brought in to modernize the Economy Ministry, sparked statements of concern from Group of Seven nations and the IMF. Poroshenko met later with G-7 ambassadors, reaffirming his commitment to reforms and reiterating calls for personnel changes in the government.

Ukraine’s efforts to stamp out corruption brought scant progress last year, according to Transparency International. The nation of 43 million people ranked 130th of 168 countries in the Berlin-based watchdog’s Corruption Perceptions Index, level with Iran and Cameroon.

The results of Ukraine’s anti-graft endeavors, key to the continued flow of financial aid as the economy recovers from an 18-month recession, will be assessed by lawmakers next week.

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