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Nobody at the World Bank get the memo about Ukraine?

February 19, 2012

You will recall my ruminations of a few days ago relating to the USA putting pressure on Ukraine via the IMF? –  Yes you do, I wrote of Ukrainian red lines as far as Tymoshenko is concerned whether you are the EU, USA or IMF.

You will remember I informed you of Mrs Rodham Clinton’s chap, Philip Gordon, whilst in Kyiv, telling Ukraine that regardless of raising the price of gas for Ukrainians as the IMF wants, the US will still not support further IMF assistance whilst Tymoshenko is in jail.

As you will know being regular readers, I fully support the IMF insistence on raising gas prices quite simply because Naftogaz Ukraine cannot continue to make $500 million losses each and every month and be bailed out by the government.  That $6 billion used to bail out Naftogaz each year could be used for much needed infrastructure or teachers, doctors, nurses pay rises etc.

You will recall Kyiv’s reaction to Mr Gordon’s threat was to remove its 2 year in job main negotiator with the IMF to other duties and Irina Akimova stating Ukraine will carry on without IMF money without any possibility of default.  As yet Ukraine has not even bothered to replace its IMF negotiating point-man and I suspect won’t this year.

A concerted effort by the US to use financial soft power to influence Kyiv?  Well if so, it seems that even if  Christine Lagarde at the IMF got the memo from the US State Department, the World Bank didn’t.  Something of a surprise considering the World Bank is (at least for now and as per tradition) run by an American.

It seems Robert Zoellick’s (current, until May when he leaves) empire will continue to support Ukraine.  Maybe he got the memo but simply binned it feeling he is subject to a coup to remove him early and therefore is rather resentful for lack of US support at his early demise.

Maybe he simply doesn’t think the internal politics and judicial system of Ukraine are a place where the World Bank needs to be sucked into.

It could be that he thinks tradition will be broken and his replacement will not be American.  If he happens to be replaced by a Chinaman, with the Chinese who are quite active in Ukraine, any decision he may have made not to support Ukraine could very well be quickly overturned and his tenure as head of the World Bank further soiled by accusations of over-politicising the World Bank.

Quite possibly he simply recognises that the red lines around the Tymoshenko issue drawn by Kyiv will not move regardless of external pressure and decided 46 million people should not suffer because of it.

Maybe as the EU continues to fund its programmes in Ukraine he sees no reason why the World Bank shouldn’t.

Whatever, the World Bank has announced it will continue to support Ukraine just two days after a US State Department mandarin added on the demand for Tymoshenko’s release to the existing IMF demand for gas price hikes for future IMF assistance.

So how much is the World Bank FDI into Ukraine each year?

Well between it and the  International Finance Corporation (IFC) if totals about $1 billion per annum.  Not a massive amount but 50% of what Ukraine has to repay the IMF this year or equivalent to two months government subsidies to Naftogaz Ukraine.

Of course Ukraine cannot use that money directly to do either thing, but a bit of jiggery-pokery with the accounts and it can amount to the same thing.  After some accounting magic, WB and IFC cash will certainly help Ukraine’s massive foreign loan repayments this year.

Anyway, it appears that whilst the IMF is happy to play ball with regard to the US State Department over Ms Tymoshenko, the World Bank will continue regardless.

You simply can’t beat coordinated international action!

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