Ukrainian Delegation Went to Washington for Negotiations with IMF
The Ukrainian delegation came to Washington for negotiations with the IMF. According to Finance Minister Oksana Markarova, the officials will have a number of meetings with the Fund’s representatives, foreign investors, as well as members of the U.S. Treasure of the State. The Fund’s mission came to Kyiv last month and approved the new cooperation program. Ukraine hopes to get the first tranche by the end of the year. To discuss this and more we are joined in the studio by Ivan Us, Chief consultant, department of foreign economic policy at the National Institute for strategic studies
How would you evaluate the visit of the Ukrainian group to Washington?
Actually, several days ago we, our mission, just flew to Washington. It is the annual meeting of the board of directors of IMF, that’s why it is the main reason why we have our delegation in this place. Another target of this visit is, of course, talks about the next credit of IMF. We know that it was one program, then due to the facts and moments that were before we started talks about a new program, a new standby. Our new minister of finance Oksana Markarova, after the change of the government, remained in her chair, flew to Washington to discuss the possibility of this program.
Has the Ukrainian side received any signals showing that IMF is ready for further cooperation and prolonging or establishing a new program of cooperation?
Actually, now we are talking about the new program of cooperation. We know that several weeks before it was a visit of IMF to Ukraine, where they watched some results but it is an official part of this situation. The unofficial part is the situation with Privatbank. Because a lot of specialists try to connect two things — the receiving of a new IMF program with the situation around Privatbank. We remember that after the nationalization of Private bank it was made to advices of the World Financial … that, who said that the main bank of your country and you should, of course, control the situation with it.
Does Privatbank should still remain the main threat to the cooperation between the IMF and Ukraine?
It is one of. Because now we see the situation when after the appearance of the new government, the draft budget was given to the parliament. But a lot of experts said that it is a very crud draft. The draft was made without any program of social-economic development of the government. And now we are waiting for this program, we are waiting for those ideas that will be inside, we are waiting for the main parameters inside of this program, of course for the new version of the budget according to the program of social-economic development of the country and the Privatbank. I think it is two main pillars of this deal with the IMF. That’s why I’m not waiting for some results in the nearest weeks because we still don’t see the program of social-economic development, the second version of the budget. Because the first version that was given according to legislation till September 15, according to many analysts it is extremely crude and it could not be implemented. That’s why IMF and some other structures said that – guys prepare this program of social-economic development, according to this program make the budget. It is the first question and the second question is the situation with Privatbank. Because it is a very influential bank for the whole banking system of Ukraine. That’s why they paid so much attention. Because any other banks are not so interesting to the IMF and other structures. But as for Privatbank and according to its role in the Ukrainian economy they pay a lot of attention and watching for our ways to solve this question.
The Ukrainian authorities have announced that they expect the Ukraine GDP would grow by 3% by the end of this year. The same expectations have voiced in the IMF. By the end of 2020, the expected growth of Ukrainian GDP is also 3% according to the latest economic outlook. According to the document, released on Tuesday, the IMF also expects that the inflation rate in Ukraine this year will be 8.7% and in 2020 it will drop to 5.9%. These are very ambitious numbers. What happens if Ukraine fails to fulfill this obligation?
Of course, this question is very interesting. Because on the one hand, the growth of economy is always a good news. On the other hand, we just start to talk and I’m sure that it will be the main topic for next decades. It deals with so-called variants of Natalya Yaresko, former Minister of Finance. According to the deal, in case of the growth of Ukrainian GDP 3% -4% Ukraine should pay 15% of the growth. In case if the growth will be higher than 4% we should pay 14% of the growth. So that’s why the Financial Community who is the owner of the variants and actually it is a question who actually is the owner, because we know that it was a deal, according to which they forgot us 3.4 billions of debts, they restructured 17 billion dollars of Ukrainian debts and that helped Ukraine to survive in 2015 in situation of Russian military aggression. While we had to pay some debts on time. But according to the deal in case of that growth, we should pay. That’s why when I saw the forecast of IMF about this growth and we see that they improved their forecast. And according to that forecast for the next years, it is always higher than 3%. If the growth will be higher than 3% it means that we should pay 15% of the growth to the owners of the variants. That’s why saying that it is such good news – on the one hand, I’m glad that our country would start demonstrating the growth, on the other hand, there is a risk. If we failed to receive – on the one hand, we will not pay this 15 % and we should understand. The situation is not so simple. On the other hand, we didn’t analyze the fact that thanks to that deal, now a lot of people including some former officials who started criticizing Yaresko for this deal. But sense of the deal, the owners of the variants, and I am more than sure that those are people who are closely connected with global financial circles, they are interested in the growth of the Ukrainian economy more than any other person. It’s something like an undercover lever of influence of the growth of Ukraine. That’s why, if, so the nearest future starting, I’m trying to say this deal starts to work since 2021, so not this year, not next year, but starting from January 1, 2021. So, those powers, unfortunately, we don’t know who are the owners of the variants, they will be interested in real growth of Ukrainian economy and, of course, if such powerful circles will be interested in that, I’m more than sure that Ukraine could receive both those results and the results that our Prime Minister said after his appointment. He recollected that he promised a 40% growth in the next five years. We will see whether it will be, but knowing that we should pay this 15% in the case from 3 to 4 and 40. In the case of more than 4, I have such a feeling that those global financial circles who did all the best to see the growth of the Ukrainian economy at more than 4%.
Okay, it has been expected that by the end of the year Ukraine will get the first tranche from IMF, and that it will be the amount of two billion dollars. Where did the sum come from, why two billion?
Actually, it’s a deal that we initially, when we started the talks with IMF, of course, we discussed all tranches, because we know that all the promised support of IMF is divided into different tranches, and we should do something, that’s why we received the first tranche. Fulfilled, yes, obligations. But as the history of Ukraine shows, the previous credit was stopped during the fourth or fifth part, if I remember, but it was more than 10. That’s why now Ukraine wants to restart this program. We had failed to do everything promised before. That’s why, actually, our new government made a lot of promises. For example, with the privatizations, with the land market, because all those pillars ha been asked before. The IMF said that you should do that, that, and that, but our government always promised that we will do but always failed. Yes, now we will see whether the new government, but in case of elimination of this moratorium on the free land market, I think that it will be the first serious step to improve our cooperation with IMF. That’s why for me it’s two absolutely connected things. The elimination of this moratorium and receiving the support of IMF, probably even for the nearest several periods. But knowing the experience of Ukraine and the fact that we have never fulfilled all this program, I am not sure that everything will be because the problem of any cooperation is that sometimes it’s reviewed, and when Ukraine said that we could not do that, we should propose something instead. It’s a normal thing in any talks with any global financial institution just because sometimes that we should do in three or four years will be not so interesting both for our creditors and for us and for those who made decisions about the next credit. So that’s why, for me first of all, a plus that we have those talks, because a lot of people, at least some people who remember the promises of our President that he didn’t cooperate with the IMF. Luckily, after the election, he changed rhetoric, and now we see that we build the relation, and it’s good news for the whole country.
Nevertheless, how desperate is Ukraine in need of cooperation with the IMF? Let’s name three stages that are going to happen to the Ukrainian economy in case the IMF declines to cooperate with Ukraine.
So, actually, first of all, there are a lot of experts who said that Ukraine has enough sources to exist without IMF, we should remember that. But as for the position of Ukraine in the global world, because cooperation with IMF is something like cooperation with the best credit rating agency in the world, it is a signal that Ukraine cooperates with the main financial powers in this world. That one should work with Ukraine because the IMF believes in this country. That’s why there are a lot of criticisms of IMF work in western literature, even in western scientific literature. A lot of Nobel Prize winners like Stiglitz always said that it’s bad to cooperate with IMF. But cooperation with IMF is not the only about the economy, but cooperation with IMF is also a political part, too. It’s the materialization of political support of the country. Because as we saw from experience of this world, when global community, first of all, the leading countries like the United States of America, like the European Union want to support some country, they don’t like to do that directly, but they use such institutions like IMF, like World Bank, like some other structures. There are several banks existing in the world that coordinate their activity with governments of European countries or with the USA, and their political support turned into the support of these structures. That’s why for me first of all, the main reason of close connection and cooperation with IMF is a demonstration to other countries, first of all to our opponents, because we understand that we are living in the reality of the war with Russia, actually, and to Russia that the world community on the other side. Some circles in Russia saw that especially those circles whose banking accounts now not in Russia but in Switzerland, London, or in some other… …and are frozen. Who are afraid of the problems and who understand that if the global community on the Ukrainian side, and cooperation with IMF demonstrates the fact that global community on the Ukrainian side, it means that war against Ukraine, a war against those structures. And of course they will not support any escalation, and that will play in our favor.
Thank you so much for coming here and giving us a deeper look into the situation.