The VoxUkraine Brief:

Mar 14, 2015 · 6 min read

IMF’s approval of bailout for Ukraine and 100 days of the Ukrainian government

#VoxUkraine weekly selection of best articles on Ukraine.

by Tymofiy Mylovanov and Tom Coupé, VoxUkraine Editorial Board

produced by Kseniya Alekankina

This week’s must-read articles on Ukraine focus on the Ukraine-IMF agreement, on the long-term goals of Russia, and on the progress of reforms in Ukraine as the Ukrainian government passes the 100days mark.

Everyone welcomes the IMF’s approval of financial support, noting that it will allow Ukraine to avoid financial meltdown in the immediate future. Concerns remain, however, about whether Ukraine will be able to meet IMF requirement for the future tranches, that the IMF bailout alone is not enough, that Russia can continue to destabilize Ukraine, and that the cost of the IMF conditions can be excessive. The Ukrainian parliament has passed critical legislation required to secure the IMF support and the government has been moving forward with reforms, but many observers worry that this is too little and not soon enough. In short, Ukraine has performed better than was expected so far, but the situation continues to be very fragile. Much will depend on the country’s ability to pick up the pace of reforms, the government’s ability to maintain integrity and legitimacy in the public eye, and the willingness of the foreign investors to complement the IMF efforts by restructuring Ukrainian foreign debt and providing additional investment in the Ukrainian economy.

On March 11th, 2015, the IMF board agreed to provide additional financial support to Ukraine.

IMF Managing Director Christine Lagarde on March 11, 2015:

“I am pleased to announce that the IMF Executive Board today approved an Extended Arrangement under the Extended Fund Facility (EFF) of SDR 12.348 billion (about $17.5 billion, €15.5 billion) for Ukraine, based on a comprehensive economic reform program supported by the Fund as well as by additional resources from the international community.”

Basil Kalymon explains why this IMF support is good for Ukraine.

The obvious reason to support the IMF Agreement is that it provides vital relief to the critical state of foreign reserves of Ukrainian central bank. The foreign reserves of the country have fallen to a crisis level of $5.6 billion (as of end-February 2015) as foreign currency has drained away under the pressure of debt repayments, trade imbalances and speculative outflow of hard currency. However, an even more important aspect of the IMF Agreement are the conditions imposed which relate to the reform of Ukraine’s economy.

Or, in words of Anders Aslund: “Ukraine has a new chance to reform and save itself

The key here is that the IMF bailout package allows Ukraine to avert financial and economic meltdown in the short run, and to increase the pace of reforms. Many analysts are optimistic - Timothy Ash for example points out that “The plus is that Ukraine now has the best set of reformers in government for any point over the past two decades, and indeed I would stack this team up against the best and brightest in the region.

But many also remain skeptical. The Economist for example points out that the IMF’s money and the $15 billion in expected savings from restructuring Ukraine’s international debt obligations “may not be anywhere near the amount that is needed by Ukraine’s crumbling economy.” It also notes that the IMF predictions about the performance of the Ukrainian economy might be overoptimistic.

Mark Baker at Radio Free Europe/Radio Liberty echoes this view indicating the austerity measures required by the IMF and the raising of the interest rate can hamper economic recovery.

“Earlier this month, the Central Bank raised the main lending rate to a world-leading 30 percent. This virtually assures that local lending and investing, at least for the time being, will not propel any kind of meaningful recovery.”

The big question remains ho Russia will behave. The New York Times analyzes possible scenarios for Russia’s Endgame.

“So far, economic sanctions from the West have not dissuaded Russia. Neither have two cease-fires. Both have failed, and a third, brokered by Germany and France, could collapse.”

Regardless of the IMF bailout and Russia’s behavior, Ukraine needs to pursue a comprehensive reform agenda. Importantly, om March 2, Ukrainian parliament has passed a number of laws introducing structural reforms as required by the IMF.

To minimize resistance to reforms, Gerard Roland and Yuriy Gorodnichenko propose a dual-track approach to fight corruption:

“The dual-track approach is a policy method aimed to minimize resistance to reforms and thus to maximize the probability of success when reactionary forces are strong. In a nutshell, the dual-track approach offers a deal to the incumbents: we do not take away all your rents in the near future but in exchange you do not block reforms and the growth of new institutions.”

Also on VoxUkraine

To assess how the performance of different ministries is perceived so far, VoxUkraine has produced a ranking of the ministers of Ukraine for the first 100 days in the office, with key ministries of infrastructure, agriculture, economic development and trade, finance, foreign affairs, and internal affairs earning good marks.

Borys Dodonov on the necessity to raise energy tariffs for the population:

Maciej Bartkowski on non-violent methods of resistance to Russian aggression in Ukraine:

Have a great weekend!

VoxUkraine: Best Minds. Ukraine Analysis.

VoxUkraine is an international opinion platform that promotes research-based policy analysis and commentary by the world’s leading scholars, policymakers and businessmen. Our readers represent governments, international organizations, academia and the private sector as well as journalists specializing in economics, politics, and business.

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Best Minds. Ukraine Analysis. VoxUkraine is an international opinion platform that promotes research-based policy analysis by the world’s leading scholars

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