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IMF compliance visit to assess Ukraine loan

Kiev is rapidly regaining the trust of international finance agencies according to the IMF. But it is still to decide on the second tranche of a $15 billion loan approved in July this year.

Resuscitating an ailing economy was the first priority of an incoming Viktor Yanukovich, and his first year as Ukraine President has had sorely needed success for a nation which had become Europe’s economic basket case, with even global financial institutions wary about its economic direction.

This year has seen it turn around the collapsing GDP and output of 2009, and record a respectable 6% GDP growth. Andrey Blinov, Editor in Chief of Expert Ukraine, says the ability of the new President to cut a deal with Russia on gas – ending a succession of gas wars which had blighted the relationship of his predecessor and Moscow – was a key part of the economic reversal.

“The Ukrainian economy has successfully passed this crisis. Cheaper gas price from Russia, minus thirty percent to the gas price. Our Minister, Mr Azarov, says that next year, Ukraine will have the gas price which will be a little bit higher to, say, Belarus price, which is one of the lowest in Europe.”

But despite the improving economy Ukraine is still heavily reliant on the $15 billion in IMF support negotiated two years ago under the previous administration of Viktor Yushenko, and approved by the global financial body in July this year. An IMF delegation has arrived in Kiev to assess compliance with loan conditions – which are deeply unpopular amongst the wider public. Blinov says they will see unpopular measures, including gas price rises, being adhered to.

“I imagine the IMF delegation sees some progress compared to their work in 2008 and 2009. Ukraine has finally significantly raised prices for gas for households – plus 50 percent – which was very negative for the political rating of the party of the regions and the president, but they did it.”

Another key IMF requirement loathed publically is pension reform involving a raise in the pension age. Some economists believe that the IMF requirements are draconian, and that the country can live without the additional support. Elena Bilan, Chief Economist at Dragon Capital, says the real driver is the country’s battered economic and financial image.

“It probably needs the IMF money to repay the loan to the Russian VTB bank. Apart from that, though, the Ukrainian government doesn’t need much from the IMF. But for Ukraine, not only the IMF money is important, but a signal that the government is doing the right thing."

After receiving an initial disbursement of $1.89 billion, the IMF team in Kiev will decide on the second tranche by November 15. Approval is expected, with a further IMF team to visit Kiev in February to monitor progress.