West Will Hang Ukraine out to Dry

West is all talk. Its financial support is too little, slow in coming and comes with strings. Russia at least is doing something concrete

Thu, Jan 8, 2015
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High Noon for Ukraine and the IMF

The latest report from the Russian TASS news agency suggests that the earliest date by which the Ukraine can receive the next tranche on its IMF loan is February and then only if the go-ahead is given at the end of January.

Given the rapidly deteriorating situation of Ukraine's economy with output plunging, inflation at 24% and the Central Bank's foreign exchange reserves below $10 billion, it is far from a foregone conclusion that the IMF will approve the next loan tranche.

The IMF is in theory prevented by its own rules from making loans to countries that cannot repay them and that seems to be the situation Ukraine is now in.

This is the third tranche of the original IMF loan that was agreed last spring. There is no word of the $15 billion of extra funding the IMF has reported Ukraine needs to cover the holes in its budget and to avoid sovereign default within the next few months.

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Unless there is a definite commitment for this extra money from Ukraine's donors before the end of January, the IMF may decide that it cannot approve payment of the next tranche. 

The dismal reality is that even the extra $15 billion the IMF is talking about may be nowhere near enough.

The international financier George Soros has called on the West to provide Ukraine with $50 billion of funding, which he presumably thinks is the minimum the country needs to turn its economy round. Other estimates put the figures much higher.

At the moment there is no sign of any enthusiasm for help to be given to Ukraine on anything like that scale. Germany is providing Ukraine with 500 million euros in loan guarantees, which given the country's situation is rather like applying sticking plaster on a patient who is dying of cancer.

The last meeting of the European Council (the highest body of the EU) held at the end of 2014 saw no willingness on the part of EU Member States to give Ukraine more economic support. The EU has capped its support at 750 million euros and has refused to provide Ukraine with financial help to pay for its imports of gas from Russia.

Meanwhile, support for Ukraine from the US has been purely rhetorical.  So far US economic support has been limited to $1 billion in loan guarantees (pledged last spring) and some technical support.

The harsh reality is that the only people who are supporting the Ukraine economically at the moment are the Russians who are providing the Ukraine with coal and electricity without prepayment and who have not insisted on repayment of the $3 billion loan they made to Ukraine last year even though with Ukraine's debt to GDP ratio above 60% that loan has now become repayable. 

With the eurozone staring at recession enthusiasm for the Ukrainian project in Europe appears to be draining away.

Unless the situation changes very soon a sovereign default may be only weeks away.


KIEV, January 8 (TASS) - The International Monetary Fund mission is to resume discussion of terms of a new loan to Ukraine on Thursday, January 8.

The mission is expected to end its work in Kiev before the end of January.

The Ukrainian authorities are looking forward to the mission’s arrival in hope that the IMF is going to going to allocate multi-billion credits to Ukraine.

On December 29, 2014, the Ukrainian parliament adopted the 2015 budget with an entire package of amendments to the country’s tax legislation.

According to Ukrainian Prime Minister Arseniy Yatsenyuk and President Petro Poroshenko, the budget was adopted exclusively with a goal to receive a fresh IMF credit.

According to foreign experts, the Ukrainian government needs additional 15 billion dollars above the IMF-approved loan worth 17 billion dollars to prevent the collapse of the national financial system and economy.

Ukraine urgently needs new loans due to the falling GDP and a rapid decline of exports to Russia, which is Kiev’s biggest trading partner.

The IMF has allocated a 17-billion-dollar credit to Ukraine to enable it to stabilize its budget amid the political and economic crisis. Ukraine received the first tranche of 3.2 billion dollars in May 2014; the second tranche worth 1.4 billion dollars arrived early in September.

The allocation of the third tranche will depend on how well the Ukrainian authorities have been implementing the stabilization programme.

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