Ukraine–IMF relations

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Since 1992 Ukraine has been a member of the International Monetary Fund (IMF).

History[edit]

Ukraine did officially become a member of the IMF and the World Bank on 3 September 1992.[1]

The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount of VAT refund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.

The IMF granted Ukraine a $16.4 billion loan in October 2008,[2] of which the government had far received $10.6 billion in May 2010.[3][4] Further payments were frozen late 2009 after Ukraine raised minimum wages and pensions contrary to IMF recommendations.[5]

In May 2010 Ukraine was the third largest borrower of the IMF, following Hungary ($11.6 billion) and Romania ($12.5 billion).[3]

On 28 July 2010 the IMF approved a 29-month $15.15 billion loan to Ukraine.[6] Among others this led to a 50 percent increase on household natural gas utility prices in July 2010 for Ukrainian consumers (a key demand of the IMF in exchange of the loan).[7][8] On 20 December 2013 the IMF stated that the Ukrainian government had only partially implemented the agreements reached in 2010 with the fund "and in this connection the program had not been implemented".[9]

In December the Ukrainian Prime Minister, Mykola Azarov, stated "the extremely harsh conditions" of a renewed IMF loan (presented by the IMF on 20 November 2013), which included big budget cuts and a 40% increase in natural gas bills, had been the last argument in favor of the Ukrainian government's decision to suspend preparations for signing the Ukraine–European Union Association Agreement on 21 November 2013.[10][11][12] The decision to put off signing this EU-Ukraine Association Agreement lead to massive protests in Ukraine.[13][nb 1] On 7 December 2013 the IMF clarified that it was not insisting on a single-stage increase in natural gas tariffs in Ukraine by 40%, but recommended that they be gradually raised to an economically justified level while compensating the poorest segments of the population for the losses from such an increase by strengthening targeted social assistance.[20] On 10 December President Yanukovych stated "We will certainly resume the IMF negotiations. If there are conditions that suit us, we will take that path".[21] However, Yanukovych also (once again) stated that the conditions put forward by the IMF were unacceptable "I had a conversation with U.S. Vice President Joseph Biden, who told me that the issue of the IMF loan has almost been solved, but I told him that if the conditions remained... we did not need such loans".[21]

In December 2013 Ukraine again applied to IMF asking for providing money, approximately 20 billion dollars, in order to meet the costs incurred due to signature of Association with European Union.[22]

In February 2014 Yanukovych and Azarov were was removed from power (as a result of the pro-EU-Ukraine Association Agreement protests) and replaced by the Yatsenyuk Government.[23]

In March 2014 the IMF required Ukraine to reform natural gas prices subsidies in order to provide it with an aid package worth about $15bn.[24] One of the expected effects is a hike of 50% on the price of natural gas sold to domestics consumers in Ukraine.[24] The hike was expected to take effect on 1 May as part of a set of intertwined contingencies required by the IMF in order to provide financial support to Ukraine.[24] The European Union, in turn, required Ukraine to secure this aid package from the IMF in order for the EU to financially support Ukraine under the terms of the treaty in an amount of about €1.6 billion euros.[24] Before the hike, all natural gas bought by the government of Ukraine was resold to consumers under government subsidies at below market prices.[24] Gas prices for district heating companies were also expected to rise by 40% from 1 July. Anders Aslund, a former economic adviser to the Ukrainian government, believed that Ukraine's expenses can be cut down by 2% of its GDP if gas subsidies are stopped.[25] On 27 March 2014 the IMF announced it would give an $14bn-$18bn rescue package for Ukraine.[26] In return the IMF demanded that Ukraine would set up a (new) Anti-Corruption Bureau.[27] Ukraine announced on 26 March 2014 that household natural gas prices would rise by 50% from 1 May.[26] On 4 September 2014 Ukraine received $1.39 billion from the IMF.[28]

On 11 March 2015 IMF approved a four-year EFF worth $17.5 billion for Ukraine. Its first tranche of $5 billion was forwarded to Ukraine on 13 March 2015.[29] Its second tranche worth $1.7 billion was transferred to Ukraine on 4 August 2015.[29] The third tranche was to be released after a review of this EFF; in this review the IMF would like to see a decrement of corruption in Ukraine.[29] This third tranche of $1 billion was agreed to be forwarded to Ukraine on 15 September 2016, despite Russian opposition (Russia was against the decision because since December 2015 Ukraine refuses to and hence de facto defaults a $3 billion debt payment to Russia that was part of a December 2013 Ukrainian–Russian action plan).[30][31][32] The fourth tranche was forwarded in Spring 2017.[33] Because of the 2017 memorandum between Ukraine and the IMF only a pension reform was achieved (and not the launch of large-scale privatization, setting up an anti-corruption court and harmonizing gas prices with the cost of its imports) Ukraine received no further financing from the IMF.[33]

See also[edit]

Notes[edit]

  1. ^ Eventually the economic part of the Ukraine–European Union Association Agreement was signed on 21 March 2014,[14][15][16][17] while the economic part was signed on 27 June 2014.[18][19]

References[edit]

  1. ^ Ukraine: The Search for a National Identity, Sharon Wolchik, Rowman & Littlefield Publishers, 2000, ISBN 0847693465, page 55
  2. ^ IMF Props Up Hungary and Ukraine as Crisis Continues, Spiegel.de (27 October 2008)
  3. ^ a b Government to direct most of International Monetary Fund's loan to currency reserves, Kyiv Post (12 May 2010)
  4. ^ Ukraine, IMF yet to agree on size of loan, RIA Novosti (12 May 2010)
  5. ^ UPDATE 2-Ukraine seeks to overhaul IMF deal, tough talks ahead, Reuters (24 March 2010)
  6. ^ IMF Executive Board Approves US$15.15 Billion Stand-By Arrangement for Ukraine, International Monetary Fund (July 28, 2010)
  7. ^ With IMF deal done, Yanukovych’s challenges still ahead, Kyiv Post (July 29, 2010)
  8. ^ Gas price hike to raise tension in Ukraine, Kyiv Post (July 29, 2010)
  9. ^ IMF slams Ukraine's macroeconomic policy, Interfax-Ukraine (20 December 2013)
  10. ^ "IMF will consider 'Ukrainian issue' on Dec 16". Interfax-Ukraine. 9 December 2013. Retrieved 10 December 2013. 
  11. ^ David M. Herszenhorn (22 November 2013). "Ukraine Blames I.M.F. for Halt to Agreements With Europe". New York Times. Retrieved 10 December 2013. 
  12. ^ Ambrose Evans-Pritchard (22 November 2013). "Historic defeat for EU as Ukraine returns to Kremlin control". Daily Telegraph. Retrieved 10 December 2013. 
  13. ^ "Ukraine still wants historic pact with EU". Oman Observer. Retrieved 27 November 2013. 
    Ukraine police dismantle Kiev protest camps, BBC News (9 December 2013)
  14. ^ "Ukraine crisis: EU signs association deal". BBC News. 21 March 2014. Retrieved 21 March 2014. 
  15. ^ eeas.europa.eu: "Signatures of the political provisions of the Association Agreement" 21 Mar 2014
  16. ^ "Ukraine to sign political aspects of EU pact on Friday". Reuters. 2014-03-17. Retrieved 2014-03-19. 
  17. ^ Croft, Adrian. "European Union signs landmark association agreement with Ukraine". Reuters. 
  18. ^ EU signs pacts with Ukraine, Georgia and Moldova, BBC News (27 June 2014)
  19. ^ EU, Ukraine to sign remaining part of Association Agreement on June 27 – European Council, Interfax-Ukraine (16 June 2014)
  20. ^ MF not insisting on single-stage increase in tariffs, says resident representative in Ukraine, Interfax-Ukraine (7 December 2013)
  21. ^ a b Ukraine to resume talks with IMF soon, says Yanukovych, Interfax-Ukraine (10 December 2013)
  22. ^ [1], Enria (18 December 2013)
  23. ^ Ukraine crisis timeline, BBC News
  24. ^ a b c d e "Ukraine agrees to 50% gas price hike amid IMF talks". BBC News. 26 March 2014. Retrieved 26 March 2014. 
  25. ^ "Ukraine can now fix its economy – if it moves fast - FT.com". ft.com. Retrieved 2014-03-29. 
  26. ^ a b http://www.ft.com/cms/s/0/737e3bd8-b587-11e3-81cb-00144feabdc0.html#axzz35r6JLhpy(subscription required)
  27. ^ (in Ukrainian) In Kyiv showed what the Anti-Corruption Bureau, Ukrayinska Pravda (8 September 2014)
  28. ^ Ukraine gets second tranche from IMF under Stand-By Arrangement, Interfax-Ukraine (4 September 2014)
  29. ^ a b c IMF expects more anti-corruption efforts from Ukraine - Vacher, UNIAN (10 March 2016)
  30. ^ IMF Approves $1 Billion Loan For Ukraine After One-Year Delay, Radio Free Europe (15 September 2016)
  31. ^ No IMF Money For Ukraine, Russia Says, Forbes (14 September 2016)
  32. ^ [2] Yahoo News. Published 18 December 2015. Retrieved 2 February 2016.
    [3], AP News (18 December 2015)
  33. ^ a b [https://economics.unian.info/2325981-weeks-balance-thorny-road-to-bright-economic-future.html Year’s balance: thorny road to bright economic future, UNIAN (30 December 2017)

External links[edit]