IMF says Ukraine has made progress on loan conditions

10:54, 12 December 2008
Ukraine
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But still faces tough decisions in next year`s budget

The head of the International Monetary Fund`s mission to Ukraine said the government was on track to earn the next part of its $16.4 billion bailout loan. But she warned it still faces tough decisions in next year`s budget and admonished the country`s warring politicians not to scapegoat its central bank, The Wall Street Journal reported.

The IMF agreed to the two-year standby arrangement with Ukraine last month to prevent a wave of corporate and bank defaults, after the global financial crisis crippled its export sector and choked off vital capital.

A "hard landing" ensued: Industrial output was down nearly 29% year-to-year in November, Reuters reported Thursday. The economic troubles have been compounded by political battles. Ukraine`s parliament elected a new speaker this week, but rival leaders are still haggling over forming a new ruling coalition.

Russian gas monopoly OAO Gazprom also is threatening to cut off gas supplies if Ukraine fails to clear debts of over $2 billion for gas delivered this year.

In return for the first IMF loan of $4.5 billion, Ukraine`s government had to scrap increases it pledged in public spending. Parliament approved additional spending cuts Thursday.

"It`s understandable that there will be `two steps forward, one step backward,`" said the IMF official, Ceyla Pazarbasioglu, at the end of a 10-day visit. "But I think...they now have the policies and the instruments." She said the country had successfully absorbed a traumatic currency devaluation.

The currency, the hryvnia, has lost 60% of its value since May, but has settled recently. The collapse has been controversial: The party of Prime Minister Yulia Tymoshenko tabled a motion for Friday calling the central bank to account for its recent actions, and possibly to dismiss chairman Volodymyr Stelmakh.

The Wall Street Journal

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