Archive for June 16th, 2011

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No pain, no gain? This week in the RADA….

June 16, 2011

It looks as though there is going to be a rather painful and quite unpopular few days in the RADA this week.

Firstly, the law on pension reform will get its eventual and much delayed perusal. It will not be popular but it is much needed. It was much needed even before the IMF made pension reform a condition of its loans. To say it is/was unsustainable would simply be stating a fact.

Also up for the “once-over” is another IMF condition relating to government subsidies on the price of oil and gas. Whilst this may get passed by the RADA, the timing of implementation may not be as swift as that of pension reform. Ukraine already has an issue with inflation, both that officially stated and also the real inflation that the public face. The Prime Minister quite rightly notes that immediate increases, whilst agreeing with the IMF about the subsidies, will have a quite adverse affect on inflation which is becoming difficult to control.

Critics of the IMF would of course note a rather consistent trend relating to IMF help followed by inflation and hyper-inflation. They would also point to the fact that IMF loans, all to often is used to ultimately repay international lenders who then take their money out of a nation, ultimately destabilising that nation and causes the currency to become worthless. A subject I will leave to the economics and/or conspiracy bloggers, but something Ukraine will be quite aware of and planning to mitigate.

What can be said is that the current Ukrainian authorities are certainly using the IMF conditions to install some much needed economic discipline
and justify some very unpopular reforms within the RADA. The finger of unpopularity will be diverted as much as possible to the IMF for the pain due to the conditions it imposed.

If the current authorities can avoid the flight of investors from the country which seemingly follows the IMF involvement almost inevitably
(investors have their money back, in effect from the IMF via a national government through conditions of the loan to repay international
obligations first and foremost, and then run off to safer pastures seemingly being the model), then the government will have done well given historical precedent of the IMF.

So, we will sit back and see if the pension and utilities reforms get through and which, if either, have an identified implementation date.  One expects the pensions reform to start in a far more timely manner than that of gas subsidies.

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