IMF gives us a chance: $5 billion in first installment and demand to keep moving with reforms

UKRAINE - In Brief 12 Mar 2015 by Dmytro Boyarchuk

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Well, the IMF approved only $5 billion as first installment instead of $10 billion Ukrainian authorities demanded. Against the backdrop of aggravated internal fights between Poroshenko and Yatsenyuk (and growing rumors about the Cabinet reshuffle) this decision was quite logical. Advance payment for the whole year would threaten not only reform progress but also might trigger very unpleasant internal political moves. Instead relatively modest sum (compared to ongoing Ukrainian problems) will keep local politicians in ‘good shape’ and will make them unite for needed changes for the sake of survival. What kind of positive effect should we expect from the IMF decision? Apparently, default is delayed. Debt restructuring is under discussion but it looks like still none has any view what it might be and we still do not see much sense to start such restructuring except for Russian $3 billion Eurobonds. At the same time we do not see the IMF money will help much with hryvnia exchange rate. Unless the Cabinet abstains from extra hryvnia printing Ukraine will not have funds for defending national currency even with $5 billion from the IMF. Unlocked extra funding from EU, World Bank and other donors might help but as usual such funding is extended in time which makes it unreliable source for hryvnia defense. Put it different, IMF gave us a good chance to survive; however, the Fund left large part of this work on our side. What is the best way to stimulate Ukrainian authorities for changes in our opinion.