IMF mission to arrive in November

The International Monetary Fund (IMF) can increase Ukraine’s loan program. This was announced by head of the National Bank of Ukraine Valeria Hontareva after the meeting with the IMF managing director Christine Lagarde in Washington, D.C. “The IMF director emphasized that the program could be expanded,” Hontareva said. The mission’s visit is planned for early November. Its experts will assess the situation in the country and the necessity to expand aid. What should be expected from the mission’s visit? Does Ukraine need further buildup of the debt dependence on the IMF? The Day interviewed Andrii BLINOV, economist and project manager at the Financial Development League:

“Valeria Hontareva’s statement is not breaking news. The regime of currency regulation, which took shape during the recent month, will obviously hold until the election, so that Petro Poroshenko’s political force does not lose voters, angered with the growing exchange rate.

“The arrival of the Fund’s mission in late October – early November is mere routine. Such mission comes to Ukraine once every two months to monitor the economic situation and prepare recommendations for the IMF’s Board of Governors.

“The recent visit of the NBU head Valeria Hontareva and Minister of Finance Oleksandr Shlapak to the US was aimed at resolving several issues. The first one was to obtain additional financial resources in a form of an increased standby credit or loans from other international organizations. The involvement of additional finances is linked to the decrease in exports from Donetsk and Luhansk oblasts. The requested sum was not officially announced, but according to preliminary estimates, it equals to four or five billion dollars before the current year is out. There is also an option of accelerated allocation of the requested standby sum of 16.5 billion dollars. We should not expect a stabilization of the exchange rate without additional increase of the financing program. So, the IMF has two scenarios to choose from: either to increase the amount, or to speed up the issuance of tranches.

“What will the IMF choose, still remains unclear. In any case, the decision will be made after the election, and the joint third and fourth tranches should be expected in December.

“The second task was to inform the IMF that Ukraine is ready to implement a memorandum clause on the recapitalization of a number of large banks.

“And the last part of the agenda was to arrange for long-term limitations on the foreign currency market. According to the information from government sources, a decision on temporary abandoning of inflation targeting and coming back to the fixed exchange rates, and perhaps, to the sloping currency fluctuation, is ripening on the top level. It is simply impossible to provide a reasonable inflation with the current budget deficit, and the guidelines for monetary policy for the next year envisage it at a mere nine percent. Clearly, this is impossible with the current state of public finance and emission rate.”