IMF view of new high court anti-corruption law still a mystery
The bill on the high anti-corruption court (HACC) has finally passed in the Verkhovna Rada. President Petro Poroshenko promptly signed it into law, and it took effect on June 14th. Nominally, Ukraine’s government has fulfilled the IMF requirement, but, predictably, the law was not quite the one the IMF wanted. First, the Public Council of International Experts (PCIE) was given limited input into judge selection. Second, it appeared that the PCIE could also include Ukrainians. Third, earlier corruption cases will be subject to review in regular courts, not the HACC. So Ukraine’s lawmakers, as usual, left a few loopholes, to keep the HACC under control.
Provisional IMF comments on the law were very restrained: the Fund said it wanted to evaluate it. It’s hard to predict the Fund’s view. If “zero tolerance for corruption” is its priority, we believe the response will be negative. If officers give more emphasis to progress, the conclusion could be positive.
We expect Ukraine’s government to wait until an official conclusion on the HACC is released before tackling gas prices, as there would be no reason to institute another painful gas rate hike if the IMF rejects this version of the HACC.
On the same day that the HACC bill was passed, the Rada dismissed Finance Minister Oleksandr Danyliuk. This was preceded by public conflict between Premier Volodymyr Groysman and Danyliuk. First Deputy Minister Oksana Markarova automatically became acting Finance Minister. Markarova is known as a strong professional, but is seen as loyal to Groysman, and potentially amenable to special requests. The IMF has already made clear that its main concern is that MinFin retains its central and crucial fiscal policy role.
Economic metrics remain encouraging. Industrial output strengthened to +3% y/y in April. Licensed retail trade continues to grow briskly, at +7.6% y/y, on the back of strong real wages, up 12.5% y/y in April. Consumer inflation slowed sharply to become flat in May, in line with the seasonal slide in food prices. The NBU once again left the prime rate flat at 17%, as inflation eased. Budget revenues reportedly fell 3.6% y/y in April, but a high baseline was the main reason: a year ago, UAH 29.7 billion was confiscated from the accounts of ex-president Viktor Yanukovych and his circle. Core budget revenues remain strong. The current account posted a $175 million surplus in April, vs a $628 million deficit in the March, resulting into a modest $202 million CAD for 4m18, somewhat wider than last year’s $176 million. The hryvnia remained stable in May, balancing at close to UAH 26/USD.
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