EU Resistance to Further Ukraine Loans is Growing

Without $15 billion in new financing commitments for the next 12 months, the $17 billion loan commitment from the IMF already in place is likely never to be paid back

Mon, Dec 22, 2014
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European leaders want Ukraine to transfer any additional loans without any further requirements.

This article originally appeared at German Economic News.  Choppy translation courtesy of Googletranslate


In the EU Member States, resistance to new loans to Ukraine is growing.

Ukraine is virtually bankrupt, and EU governments do not know where they are to find resources for the new loans. The problem: Without a financing plan for the next twelve months, Ukriane will be unable to return the 17-billion-dollar loan from the IMF.

European leaders want Ukraine to transfer any additional loans without any further requirements. More recently, the IMF has discovered another financing gap in the Ukrainian budget.  

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This amounts to 15 billion dollars. Kiev therefore urges the EU and other governments for financial help.

The Deputy Head of the Presidential Administration of Ukraine Valeriy Chaly said on Monday to journalists: " Without additional resources, it is almost impossible to close the financial gaps ... and so carry out reforms and avoid a late payment ".

Ukraine needs to close the hole until the end of next month. Otherwise there is the utility already agreed with the IMF in the amount of 17 billion dollars fail.

However, the resistance of the political representatives in Berlin, Brussels and even grows in Warsaw. They warn that Ukraine failed to progress in economic reform, making further support politically impossible, citing the FT.

The issue will be discussed at just held the EU summit in Brussels. Senior officials who are involved in the planning agenda, say that the readiness for further EU funding - in addition to the two already existing - was declining , the FT.

Especially from the point that there is no concrete evidence that the Kiev government is working on the reforms agreed with the IMF. The diplomats suspect that there would be no decision on the utility on the EU summit.

Ukrainian leaders have already asked the EU countries to increase their financial obligations to the country.

The IMF expects the economy of Ukraine in acute danger: The share of the shadow economy is between 30 and 100 percent of the reported gross domestic product . Because of the war in the east of the country, the economic crisis will deepen. Without further loans from Europe Ukraine can not exist.

The foreign reserves of the Ukraine fell in November for the first time in nearly a decade below the mark of 10 billion US dollars. Large payments for natural gas imports and debt service melt the reserves. As the Bank has reported that foreign exchange and gold reserves fell by 21 percent from the previous month to $ 9.97 billion.

But the central bank burns foreign exchange reserves amounting to nearly three billion dollars a month. So that the country would either reduce its budget drastically or restructure the public debt in order to get the IMF demands.

Poland, one of the most loyal allies of Kiev, said on Wednesday, food and clothing to send for the winter in the amount of five million euros in the Ukraine. But privately speak Polish diplomats and politicians skeptical about the issue of further funds.

With no visible progress in reforms we can not even begin to think about more resources . It just does not make sense, "the FT quotes a senior Polish government officials. The EU has Kiev until early December, 500 million euros as "paid microfinance help" .

On detailed conditions of the loan is not bound. In the EU report is only so the Ukrainian news agency Ukrinform that "the EU expects in return that Ukraine carries out reforms for the benefit of its citizens." Monitoring the use of funds, such as in Greece by the Troika is not provided. On Monday only received a referral Kiev in the amount of 150 million euros from the European Bank for Reconstruction and Development (EBRD).

The Foreign Minister of Poland, Hungary, the Czech Republic and Slovakia, said Petro Poroshenko at a meeting in Kiev this week that the four countries support no further grants or European efforts to bail out without commitments on reform.

Then Poroshenko secured a "clear timetable" to. Premier Arseny Yatsenyuk promised tougher action against corruption. In addition, tax loopholes to Cyprus or other offshore financial centers are aimed at preventing a tax reform. But the first decisions especially the citizens of Ukraine : The first budget of the new government provides dramatic cuts in the social system . In addition, the government increased gas prices for Ukraine's population to finance the deficit of 5.6 billion euros in Naftogaz. For residents a tough measure, because of the lack of gas and the loss of coal-mining areas in the east of the country lead in Ukraine to power failures. The people of Kiev and other cities sit for hours in the dark .

The public debt must Kiev also strongly runterschrauben, because Russia holds Ukrainian government bonds, which have a special additional : Russia may insist on immediate payment when the Ukrainian government debt to rise relative to GDP over 60 percent. However, although the state bankruptcy threatens doubles the Ukraine's military spending .

There are so many ways to split the bill , "said Mujtaba Rahman, head of the consulting firm Eurasia Group analyst. To forgive "loans to Ukraine is a geopolitical necessity. The IMF will therefore make such a gesture. But he can not take the whole bill to pay the specified minimum reforms of the government. The private sector must also contribute . "

The IMF requires that a government may submit a financing plan for the twelve months to pay off grants . Without the additional $ 15 billion that would have to be present at the meeting in late January, the IMF would not be able by its statutes to pay the bailout of 17 billion dollars. "It is important that the donor community comes forward and financing of Ukraine hedges, so IMF spokesman William Murray.

"To pay for the Ukraine is comparable to the Federal Republic of Germany, which pays for East Germany. Only that Ukraine is larger than East Germany, a European diplomat to FT. " Who will pay will be an interesting discussion.

 

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