Sorokina O.N., Sychkov D.I.
Donetsk National University of Economics and Trade named after M.I.
Tugan-Baranovskiy
Affects of the Ukrainian
Governmental Policy on the Receiving of the IMF Stand-By Loan
Ukraine's president defied
warnings of the International Monetary Fund and approved an increase in social
spending that will balloon the government deficit. The move will likely lead to
a suspension of IMF lending to one of Europe's most fragile economies. In
response, ratings agency Standard & Poor's downgraded its outlook for
Ukraine, while the IMF president promoted serious concerns about further consequences
of Ukraine's decision.
Ukraine's collision with
the IMF comes amid jockeying among Ukraine politicians before presidential
elections in January. While IMF officials worry that an economic meltdown in
Ukraine could spoil a fragile recovery in Europe, the country has also emerged
as a testing ground for the integrity of IMF lending standards. The IMF had warned
Ukraine President Viktor Yushchenko a couple of times that he needed to veto
the law boosting Ukraine's minimum wage and pensions if the country was to
remain on track with the IMF lending program.
Mr. Yushchenko under the
pressure of up-coming elections had no choice but to remaine noncommittal until
4th of December, when he announced to reporters that he had signed
the bill. Mr. Yushchenko said he didn't want the country's budget problems to
be solved "at the expense of pensioners, poor people and the
disabled." But undoubtably that decision is pushed nit by the economical
perspectives, but due to the need of social-appeal.
Of all the countries the
IMF has helped this year, Ukraine has proved to be the most complex because of
the tangled politics. The IMF delayed an earlier disbursement of money to keep
pressure on Kiev. With local politicians denouncing the IMF for its austerity,
the IMF's resident representative met this week with labor leaders and other
officials to put forward a friendlier face. But the president's action, in the
face of a direct warning from the IMF, appears to leave little wiggle room. IMF
chief Dominique Strauss-Kahn claimed Reuters that Ukraine was now off track and
in this situation It would be very difficult to complete the next review of the
program. Wage and pension rises jeopardize release of the next $3.8 billion
tranche of an IMF bailout package and may also thwart financial help as well
from the European Union and other financial institutions.
The Executive Board of the International Monetary Fund approved a
two-year Stand-By Arrangement for SDR 11 billion (about US$16.4 billion) on
November 5th 2008, to help the authorities restore financial and
economic stability and strengthen confidence. The SBA request entails
exceptional access to IMF resources equivalent to 802 percent of Ukraine's
quota in the Fund, and was approved under the Fund's fast-track Emergency
Financing Mechanism. The IMF has already handed
out almost $11 billion in loans to Ukraine since approving a $16.4 billion
standby loan in the fall of 2008. These have helped to prop up distressed
banks, plug holes in the budget and support the Ukraine's currency – hryvnia. The IMF’s
Ukraine package is actually pretty large if we take into account that IMF’s total
funds available for global distribution at the present time only run to about
USD220bn - and there are undoubtedly going to be more customers. The package is
similar in size to the one Turkey got in 2002 after the collapse of the Turkish
economic and financial system. This would seem to be a clear indication that
the IMF sees the risks in the Ukraine as extremely high. Furthermore, the fact
that the IMF has acted so rapidly (relative to the time it took with Turkey in
2001/02) offers a clear indication that they fear a domino effect across
central and eastern Europe wherby a collapse in one country “automatically” leads to a
collapse in another one. There is a very severe credit-crunch-type (sudden
stop) crisis raging in Ukraine (and across Eastern Europe more generally by the
look of it) at the present time, and the macroeconomic consequences are hard to
forsee, although quite a serious recession does seem imminent in the Ukraine
case. The first
part of the loan was received by the NBU on Nov 10th 2008, and was
spend mainly on support of the financial system and currency stability, the
second one equaled the amount of 2,625 billion dollars and was approved on May
14th 2009, that money were spend not only on support of banking
system, but on solving budgetary problems as well. The latest 3,3 billion
dollars loan was received by Ukraine on August 5th and was a result
of extremely complicated negotiation of local government and IMF authorities.
A sign of significant problem inside the financial
system of Ukraine appeared to be a claim of vice prime-minister Mr. Nemyrya,
asking for an urgent loan of 2 billion dollars from EU for covering of the
sovereign debt, otherwise Ukraine might face the default. Political unbalance
prior of the President elections 2010 became the catalyst of such a
serious economical troubles. Their solving requires a united actions of
Government, President and opposition in order to prevent collapse of Ukrainian
economy.
References:
1. http://www.imf.org/external/index.htm – International Monitory
Fund
2. http://www.eurofinance.com/ - Euro Finance Agency
3. http://ukrstat.gov.ua/ - UkrStat
4. http://www.president.gov.ua/ - Official Web Site of the
President of Ukraine
5. http://www.bank.gov.ua/ - Natioanl Bank of Ukrine