The mission of the International Monetary Fund (IMF) which began work in Ukraine yesterday reduces the schedule of work and will not revise the program of cooperation. This was reported by “Ukrainski Novini” citing an informed source.
According to the source, the IMF changed the schedule of work of the mission in Kiev.
“Today or tomorrow the mission will return to Washington. The program will not be revised. The reason – the dissolution of parliament,” he said.
According to him, there were no personnel appointments in the Presidential Administration that went unnoticed.
Conclusion
There is no reason to expect Ukraine to receive another $1.3 billion IMF loan in the near future. There will be no money despite the fact that Kiev has basically fulfilled the conditions for the continuation of funding. There are several reasons for this. First of all – the exclusion from the Criminal Code by the decision of the Constitutional Court of the article on liability for illegal enrichment. In the team of President Zelensky they say that a draft law on the return to the Criminal Code of this provision is almost ready and will be submitted to the Rada as urgent.
However, the IMF is waiting for a decision, not the preparation of a draft law. In addition, the IMF wants to know the position of the President of Ukraine on a number of key issues that are part of the cooperation program. Talk about the immutability of the agreement on the price of gas, on the independence of the National Bank, and the position of Zelensky in relation to PrivatBank in the context of court decisions on the abolition of the nationalisation of this financial institution. In addition, the situation with the continuation of funding was complicated by the resignation of Prime Minister Vladimir Groisman.
The mission of the International Monetary Fund began its work in Kiev, as was earlier planned, on May 21st. Within two weeks, experts are supposed to conduct an assessment on Ukraine’s fulfilment of its obligations under the stand-by financing program. The result of such work is usually the clarification of the borrower’s next steps and the recommendation to the IMF board of directors on the allocation of the next tranche of the loan.
Ukraine’s financing under the 14-month stand-by program totalling $3.9 billion started in December 2018. Back then the first tranche of $1.4 billion was allocated. A review of the program with the allocation of the next two tranches of about $1.3 billion was planned every six months – the middle and the end of 2019.
However, there is no reason to expect that this time the mission’s work will end with the allocation of funds, especially after the Prime Minister of Ukraine announced his resignation . Vladimir Groisman already wrote a statement and intends to submit it to parliament on Wednesday, May 22nd, after a meeting of the Cabinet of Ministers.
According to legislation, in this case the duties of the Prime Minister have to be transferred to the first Deputy Prime Minister Stepan Kubiv. A vote in the Rada for the resignation of the Prime Minister is considered as the resignation of the entire government, but it should continue its work until the appointment of a new Cabinet. But the IMF does not practice allocating funds to countries when members of the government are actually in an acting capacity.
Several agency interlocutors familiar with the results of preliminary contact between representatives of the IMF and the Ukrainian authorities are confident that the process of allocating the next tranche on the basis of the work of the IMF mission was practically impossible, even if the Prime Minister had not announced his resignation. Moreover, the further provision of credit funds can not happen even despite the positive dynamics of Ukraine’s fulfilment of its obligations.
Of the six bullet points that had to be completed before May, almost everything was fulfilled, except for adopting a law on the division of the functions of the national commission for regulating financial services between the National Bank of Ukraine and the national commission on securities and the stock market – the law on split. According to the agency, there is the preliminary understanding that the deadlines for the adoption of this document may be postponed.
At the beginning of 2019 the Constitutional Court recognised as unconstitutional the criminal prosecution of officials for illegal enrichment and actually cancelled the effect of the corresponding Article 368-2 of the Criminal Code.
This caused the IMF to be indignant since the introduction of such a responsibility was a condition for the allocation of credits in accordance with the 2015 EFF program. Representatives of the working mission of the IMF who were in Kiev at the beginning of March were “simply shocked” by the Constitutional Court’s decision, some negotiators from the Ukrainian side noted in a conversation with “Ukrainski Novini”.
The position of the IMF was that an article about punishment for illegal enrichment must be in the Criminal Code. The representative of the IMF in Ukraine Gosta Ljungman noted that on the one hand, it has to correspond to agreements with the Fund, and on the other hands – of course, it mustn’t be contrary to the standards of the Constitution.
As was mentioned earlier, according to the team of the president Vladimir Zelensky, the draft law on criminal liability for illegal enrichment is already almost ready and it is expected that it will be given to the Verkhovna Rada as urgent. However, it’s not clear how deputies will consider presidential draft laws after the statement for the dissolution of parliament.
Representatives of the government, in a conversation with “Ukrainski Novini”, did not exclude that during negotiations it would be possible to postpone the adoption of the article about responsibility for illegal enrichment until the next revision. However, representatives of international financial institutions that lent funds to Ukraine said that such an option is unrealistic. “If this article isn’t returned to the Criminal Code, then it will be possible to consider that relations with the IMF have fallen back to the original point. It is possible to consider that the work has simply stopped,” noted the interlocutor of the agency representing one such institution.
In addition, the IMF does not yet know Vladimir Zelensky’s position on key questions of the program of cooperation. “Now it is necessary that the lender has a clear understanding of what position the new President takes,” noted the interlocutor of the agency representing Zelensky’s team.
So far there isn’t any information about the IMF mission changing its status – “evaluating” to “working” – since there is no information about reducing the timeframe of its work in Kiev. A meeting between IMF experts and the President Zelensky is planned, but it’s not clear yet on what day.
According to the interlocutors of the agency from the government who participate in negotiations, the most likely outcome of the mission would be a conclusion on the progress of the implementation of the terms of the programme. Concerning a revision of the memorandum and the allocation of the next tranche, this question may be postponed until the election of the new Verkhovna Rada and the formation of the new government.
Meanwhile, Vladimir Zelensky’s adviser on macroeconomic policy Oleg Ustenko has already announced the possibility of concluding a new program of cooperation with the IMF after the early Rada election, if it is not possible to continue work on this program.
In the meantime, there’s plenty of time. The next peak of payments on foreign debts falls on September – it will be necessary to pay more than $2 billion. The National Bank of Ukraine has enough funds in its reserves for painless debt coverage, and the government can enter foreign borrowing markets. If it is possible to raise funds at an affordable price, then “Naftogaz of Ukraine” may also enter the foreign market in order to raise funds for the purchase of gas. “We will determine the expediency of issuing Eurobonds only by September,” said the head of “Naftogaz” Andrey Kobolev on May 16th.
Yury Doschatov
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