When the International Monetary Fund’s board convened on April 3, it found that the Ukrainian government had fulfilled only five out of fourteen structural reform conditions it had outlined, reads the article in Atlantic Council.
The reason the IMF disbursed the fourth tranche to Ukraine, even though the government had fulfilled fewer than half of the IMF’s structural reform conditions, is that Ukraine had fulfilled the macroeconomic conditions—primarily the budget balance, which is most important, according to the article.
Ukraine was supposed to have a budget deficit of no more than 3.7% of GDP in 2016, but it stopped at only 2.3% of GDP, overperforming impressively. Inflation was slightly less than required, though the foreign deficit was somewhat larger, and the exchange rate had stabilized under tough external conditions.
Read alsoReuters: IMF says new Ukraine central bank chief must be independentThe question of whether the IMF imposes too many structural conditions is justified. That was the main complaint about IMF programs in Indonesia and South Korea during the Asian financial crisis in 1997-98. Yet the IMF cannot ignore broad domestic and international opinion calling for severe measures against corruption and for social justice in Ukraine. The formal IMF justification is that these structural reforms are necessary to achieve macroeconomic goals.
During the last period, the two most important structural conditions were that the National Bank take over the heavily undercapitalized PrivatBank, and that Ukraine implement the strict filing of asset declarations of 100,000 officials. Both were done, and the conditions that were not met were far less important.
For the next tranche, Ukraine is facing no fewer than sixteen structural conditions, but the two really important ones are the parliamentary adoption of pension reform legislation by the end of April and a law on agricultural land sales by the end of May.
Read alsoIMF warns of consequences for Ukraine if level of corruption not reduced“If these two conditions are fulfilled, my guess is that the IMF will approve its fifth installment by June,” the author wrote.
“Thanks mainly to IMF loans of $8.8 billion in the last two years, Ukraine’s international currency reserves have risen from $5 billion to $16.7 billion, which has allowed the exchange rate to stabilize and inflation to be contained, offering Ukraine real possibilities to finally start growing soundly,” Aslund concluded.