IMF arrives to Ukraine, but no hope for cash

An International Monetary Fund mission arrived to Ukraine on Aug. 29 at the request of Deputy Prime Minister Valeriy Khoroshkovskiy, who has been courting IMF in a hope to eventually restart the $ 15.6 billion facility approved in 2010.

Ukraine only received $5 billion of this loan before the program was frozen in early 2011 due to the government’s stubbornness in refusing to hike the utility prices for the population. The government needs to hike the price by up to 50 percent to be able to cut the bleeding from the budget in the form of subsidies.

The mission’s job this time is to examine the 2013 budget to make sure that the IMF is comfortable with its basic parameters, and Ukraine gets a chance to renew borrowing next year, a senior government official said.

In August, Khoroshkovskiy traveled to Washington and met with IMF’s Managing Director Christine Lagarde, asking for a new mission to be sent, in order “to prepare ground for cooperation in the future,” a source in the government said on the condition of anonymity because he is not authorized to speak on the issue. He added that the meeting was “very amicable.”

Just hours after the mission’s arrival to Ukraine, Petro Poroshenko, the economy minister told the media that the government might reconsider the basic parameters of the next year’s budget to make them less optimistic.

The Gross Domestic Product forecast for next year is 3.6 percent, down from the earlier forecast of 4.1 percent. Inflation is expected to stand at 7.8 percent. Poroshenko was quoted by Interfax news agency as saying the government might approve the budget on Sept. 12 and send it on to parliament.

This year’s macroeconomic indicators might also be reduced. The government forecast GDP’s growth at 7.9 percent. But Dragon Capital investment bank recently slashed its GDP forecast to just 1 percent.

Ukraine needs the IMF cash badly. It has been borrowing heavily to be able to bridge the gap in its financing. Just two days before the mission arrived, Ukraine placed a $1billion Eurobond, paying a semiannual coupon of 7.95 percent and maturing in June 2014. The bond was needed to settle a part of the $2 billion loan with Russia’s VTB. The first half of the loan was repaid in June.

On top of the VTB loan, Ukraine is due to pay $1.6 billion in debt by the end of the year, according to Dragon Capital.

In July, Ukraine placed another $2 billion dollar Eurobond, at 9.25 percent, making it the most expensive and the largest placement in the past 12 years.

The state of the nation’s finances is so bad that former president and banker Viktor Yushchenko said on Aug 28 that Ukraine is close to default.

“International experts rank Ukraine as the fourth in the world by the chance of default. This is an absolutely correct reaction, because there are reasons for it,” Yushchenko said. He also speculated that in the absence of international loans the government will switch on the printing press.

He traditionally blamed his former ally turned enemy Yulia Tymoshenko for the problem, though, saying that as a prime minister she borrowed too heavily and at high rates.