International Monetary Fund Withholds $3.5 Billion Loan to Ukraine

12:14, 11 December 2009
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The installment...

The International Monetary Fund has decided to withhold the latest installment of a $16.8 billion loan to Ukraine until after the presidential election next month, reflecting its growing frustration over the inability of the country’s politicians to get the budget under control, according to New York Times.

The installment, $3.5 billion, would be the fourth since last year to be paid to Ukraine, which is facing its worst economic crisis in nearly two decades. The fund had already disbursed almost $11 billion to the country by July.

Despite a rising deficit, President Viktor A. Yushchenko and Prime Minister Yulia V. Tymoshenko have been trying in recent weeks to outdo each other in new spending.

The last straw for the monetary fund appeared to be Mr. Yushchenko’s decision last month to enact wage and pension increases of about 20 percent, despite objections that such measures would feed inflation and unemployment.

The monetary fund has forecast that Ukraine’s economy will contract 15 percent this year, with inflation running above 16 percent.

“It’s the same old story,” said Igor Burakovsky, director of the independent Institute for Economic Research and Policy Consulting in Kiev. “Everything is politicized. Actually, the I.M.F. has become very frustrated with the leadership because there is no consensus and no coordination.”

Ceyla Pazarbasioglu, the monetary fund mission chief to Ukraine, said on a November visit to the country that the fund was not abandoning Ukraine.

“We stand ready to continue our help, of course, should Ukraine choose to go on with the program and implement the policies needed now to build on the early gains,” she said. “But there is serious disagreement among the authorities on how to proceed.”

An official of the fund said on Thursday that it was ready to go back at any time when the main political players reached a consensus. “Without consensus, it really is just very difficult to proceed,” the official said on condition of anonymity because of the delicacy of the situation.

Mr. Yushchenko and Ms. Tymoshenko were allies during the so-called Orange Revolution democracy movement in 2004, but have since become political enemies in a way that has polarized Ukraine and jeopardized chances of introducing major economic and social legislation.

With the election campaign now well under way, the main candidates — Mr. Yushchenko, leader of Our Ukraine, Ms. Tymoshenko, leader of the Yulia Tymoshenko Bloc, and Viktor F. Yanukovich, a former prime minister and leader of the Party of Regions — have all resorted to populist measures.

The proposals for wage and pension increases were presented to the Parliament, or Rada, by the Party of Regions, which is based in the eastern half of the country. The party was able to push them through because Ms. Tymoshenko leads a minority government.

For her part, Ms. Tymoshenko had already proposed other spending measures, which also could have been financed only by raising the budget deficit.

Despite the monetary fund’s reservations, Mr. Yushchenko signed the wage and pension bill.

Ms. Pazarbasioglu, the fund mission chief, said the social standards law, as it is called, would cost as much as 7 percent of gross domestic product in 2010. “It is totally unsustainable,” she said.

Even if it were modified to limit the increases to low-wage workers, she added, “we estimate a cost of as much as 2.5 percent of G.D.P., a very large addition to Ukraine’s budget deficit.”

Much of the monetary fund loan package was intended to make up for lost revenue. According to the Finance Ministry, Ukraine government receipts were supposed to total $30 billion this year. By last month, only $18.4 billion had been received.

By JUDY DEMPSEY, New York Times

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