Archive for July 20th, 2011

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No more IMF money until after 2012 elections….but it’s not urgent‏

July 20, 2011

Well now, Ukraine and the IMF are at a stand-off once again, although this time it would seem to suit Ukraine, at least politically, and possibly spell the end of IMF assistance to Ukraine.

A few months ago The Democratist and I sat in Odessa discussing Ukrainian issues and the IMF came up. He seemed somewhat surprised when I said that Ukraine no longer needed IMF money urgently but that the government was keeping to the IMF conditions as a foundation and straight-jacket to push through unpopular reforms. It is always helpful to have somebody else to blame for unpopular changes after all.

Confirmation of what I told him months ago, now appears to have become public knowledge due to the Ukrainian government failing to push through additional charges for utilities despite the IMF insistence. The most difficult political issue of pension reform having now made it through the RADA under the guise of economic necessity and IMF insistence. It is yet to get the Presidential signature and become law it must be said.

Now however, what I suspected/knew to be the case, has become public knowledge either deliberately or accidentally. Ukraine is not reliant upon IMF funding and does not expect to get any more money until the utilities pricing issues are addressed.

There is no rush as the above link shows. Ukrainian reserves are at a record high.

The real issue is whether this is the end of IMF involvement in Ukraine. As it seems the current government will not address yet another unpopular issue until after the October 2012 elections and the previous and now unseated government broke the terms of the initial IMF agreement in 2009, there may still be no political will after the elections to reengage with the IMF.

That said, should the current government retain a majority after October 2012, it may well then address the issue rather swiftly, confident of another 5 years in power and the knowledge any utility price rises pushed through at the end of 2012 will be forgotten by 2017 when the following elections come around.

Should it lose having passed the unpopular utility price rises before 2012, you can guarantee the populist left of centre politicians such as Ms Tymoshenko would reintroduce the utilities subsidies and campaign on a platform that would include exactly that (regardless of the long-term outlook). It would seem politically inept to knowingly provide such a platform with an election only 14 months away and a winter heating season looming.

Another large financial shock to the global system resulting from the EU or the undoubtedly weak US budget deal that will emerge from negotiations in October within the bowels of Capital Hill, may well force changes in the current Ukrainian position should the US$ devalue rapidly.

Anyway, baring economic shocks, it would appear further IMF funding will not come until after the 2012 elections. Thereafter, it will depend upon who wins a majority in the RADA.

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