Lagarde: IMF probably will provide additional support to Ukraine - Ukraine Business Online:
KYIV/LONDON, Feb 26, 2014 (UBO) – Responding to an announcement by IMF head Christine Lagarde that additional assistance for Ukraine is possible, Standard Bank chief emerging market economist Timothy Ash said:
Al Jazeera is reporting US officials as suggesting that the IMF may be willing to lend up to USD15bn in a new programme. I assume that this will be augmented with some modest additional bilateral contributions, perhaps to take the total package to perhaps USD20-25bn.
This is short of the USD35bn being called for by Ukraine's acting finance minister, but for me it is not just about the money. What is important is:
First having a solid reform coalition in place ASAP. The longer the delay in having a functioning administration and accessing international financing, the likely the larger the hole in the government, bank and external balance sheets which will need filling.
Second, having a credible reform programme in place, and assurance that a future administration will hold to this - Ukraine has a very poor track record in this respect, and the international community needs to think through how it can anchor reforms. Ukraine can help itself by carrying out fiscal adjustment, energy sector reform, FX adjustment, fighting graft (including going after assets stolen by the former regime - and the West needs to help here), which should help close fiscal and external financing gaps.
Third, somehow working to normalise the relationship with Moscow - albeit likely to be very difficult in practice. Ukraine needs to offer something in exchange for its drive for European integration - actually I have long argued for the privatisation of the gas transit system, and let the Russians pay top dollar for it! The GTS is after all worthless if Russia just opts to build pipelines around Ukraine, and even if Russian owns the pipeline - IT IS STILL IN UKRAINE, the latter fact will always ensure Ukraine has geopolitical leverage. This is Ukraine's hour of need and it needs to think creatively to get out of the vice.
Fourth, Ukraine needs an extended period of political stability, with an administration in place for an extended period and able to implement reforms.
Finally note the IMF issued a report earlier today which underlines the challenges. They warn of the risk of further downside in the UAH, but also of a double digit drop in real GDP this year - I thought that that warning was particularly stark.
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The above commentary represents a personal view, is not investment advice or Standard Bank research, but may contain extracts from published research.
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