President Viktor Yushchenko has promised Ukraine’s biggest creditors, the IMF and the World Bank, that the country’s authorities will work together to protect loan deals, including cutting the budget deficit.
Yushchenko sent a letter to both institutions late on Friday after the International Monetary Fund said it was willing to adjust its $16.4 billion credit program, given a deterioration in global conditions since it was clinched last October. The IMF has, in effect, suspended the release of the second tranche of that credit, worth about $1.84 billion, because of differences over the way Ukraine is fulfilling the program.
The global economic crisis has slashed demand for Ukraine’s steel and chemical exports, and investors have also been spooked by politicians’ resistance to meeting the terms of the IMF deal. Two international rating agencies have downgraded the ex-Soviet state’s debt. “Next week, state institutions and political parties will produce agreed positions on unresolved issues and turn them over to the IMF office in Washington,” the president wrote on Friday.
“Laws deemed necessary by the latest IMF mission will be presented to parliament. This will enable us to significantly reduce the 2009 state budget deficit. Through these steps, Ukraine will show it is ready to resume dialogue with the IMF.”
Yushchenko dispatched the letters after a day of talks with his main rival, Prime Minister Yulia Tymoshenko, the speaker of parliament and a senior opposition leader.
At the close of the talks, the president urged politicians to end quarrels as Ukraine gears up for a presidential election early next year. Yushchenko and Tymoshenko, allies in the 2004 ‘Orange Revolution’ that swept pro-Western leaders to power, now disagree on nearly all issues.
Leaders agreed to produce documents on cooperation with international financial institutions on Monday.
“What a difference a credit rating downgrade makes,” said Tim Ash at RBS in London. While the latest downgrade was “very harsh on Ukraine ... it does appear to have sparked the first signs of reconciliation and policy action in Kiev,” Ash said. “Perhaps Ukrainian politicians are getting the message.”
The influential weekly Zerkalo Nedeli said Friday’s talks also produced agreement between the president and prime minister to leave in place central bank chairman Volodymyr Stelmakh.
Tymoshenko has demanded the president dismiss the central bank chief over a decline in the hryvnia currency which, at one point late last year, fell to 50% of its former value. The IMF mission chief to Ukraine, Ceyla Pazarbasioglu, told reporters in Washington on Friday that the Fund was willing to consider different options for the budget deficit.
A balanced budget or a gap of no more than 1.0% of gross domestic product was no longer feasible, she said, but Ukraine had to secure further financing. The budget now provides for a deficit of about 3% of GDP.
Pazarbasioglu expected a Fund mission to return to Kiev next week and said the IMF could further downgrade its GDP growth forecast for Ukraine to a deeper contraction beyond 6.0% for 2009. Tymoshenko’s government has a forecast for 0.4% growth, denounced by the president as excessively optimistic. (Reuters)