Loan champions

“Why such a rich country has a debt this large and never has money to pay it back?” This question was asked by The Day’s editor-in-chief Larysa Ivshyna at one of the first issues of a new show “Politics Club with Vitalii Portnikov” broadcasted on TVi channel. However, the members of the discussion left it unanswered. But we desperately need the answer, since we have been accumulating debts for 20 years now. They pull us into a financial yoke, and there is no way out of it to be seen.

We matched Ukraine’s cooperation with its main money lender and different political “eras,” when the office was held by different leaders. So we could see who borrowed money and who had to return it. We tried to create a retrospective of our debt history with one of the largest creditors using the data provided by the Ukrainian IMF office.

Ukraine became a member of the International Monetary Fund on June 3, 1992. The first financial help we asked for was designed to support the balance of payments. On October 26, 1994 (at that time Leonid Kuchma was the president, the cabinet of ministers was headed by Vitalii Masol, and Viktor Yushchenko was the head of the National Bank), Ukraine received a 498.7 million Systemic Transformation Facility (STF) loan, which equaled to 763.1 million dollars. It was then that Ukrainian government started breaking the promises it had made. So, the program was aborted because Ukraine failed to comply with a number of terms, and the IMF did not provide additional 900 million of dollars within this program.

But despite that, we have been successfully borrowing money from the Fund during the next seven years for different purposes: to support the national currency rate, to finance the deficit of Ukrainian balance of payments, etc. And it was Valerii Pustovoitenko’s government that had to pay the debts back. The first return of the IMF credit was scheduled when Pustovoitenko held the office (from July 16, 1992, to December 22, 1999).

From 1998 to 2002 the Extended Fund Facility program (EFF) was launched in Ukraine. It provided a 2.6 billion credit for us. In December 2000 (prime minister – Viktor Yushchenko, head of the National Bank – Volodymyr Stelmakh, finance minister – Ihor Mitiukov), the EFF program was extended till 2002, but as a result, the Fund did not assign the remaining credit to Ukraine after considering the latest reports of the program implementation to be negative. Therefore, Ukraine received 1.193 billion STF (1.591 billion US dollars) within the EFF program. This money was used to replenish the National Bank’s exchange reserve.

From 2002 to 2008 Ukraine did not borrow from the IMF. But during this period we returned some of the previously borrowed money. After the EFF program was over, Ukrainian government (headed by Viktor Yanukovych) chose the Stand-By protective program among the acceptable forms of further non-credit relations between our country and the IMF. On March 11, 2004, prime minister of Ukraine Yanukovych and head of the National Bank Serhii Tihipko signed a letter by the Cabinet of Ministers of Ukraine and the National Bank of Ukraine to the International Monetary Fund.

The letter spoke of intentions of economic policy for 2004 and contained appendices on provisional measures, effectiveness criteria, and indicative goals (which were approved at the meeting of the Economic Development and European Integration Committee and at the Cabinet of Ministers session). On March 29, 2004, the IMF’s Board of Directors ratified the “Protective Stand-By” program for Ukraine, which allowed our country to receive a credit of 411.6 million STF (about 600 million US dollars). According to the agreement, Ukraine had a right to use the credit in case the country’s balance of payments or exchange reserve worsened. “Protective Stand-By” program also was aimed at the gradual transformation of relations between the IMF and Ukraine to the non-credit ones. The agreement was signed to last for 12 months, and it ended in accordance with the terms stated in it.

In November 2008, Yulia Tymoshenko’s government received a three-billion STF tranche from the IMF. And another one in 2009, this time it was four billion STF. In 2012, Azarov’s government received the credit from the IMF. In general, during the years of cooperation with the IMF (from 1994 to 2011), we have borrowed 12.259 billion STF, which is equal to approximately 18.28 billion US dollars of credit resources. However, we paid back only about 4.985 billion STF. According to the Ukrainian MFA’s data for the period from January to March, 2012, the overall debt of Ukraine to the IMF is equal to 15.777 billion US dollars.

The Day asked the experts to comment upon the retrospective of cooperation between Ukraine and the IMF considering the politicians that held the office at this or that time. It seemed that this last detail holds the answer to the question why such a rich in resources country cannot get rid of the debt.

“YOU CANNOT COOK IN A LEAKING PAN. YOU HAVE TO MEND THE HOLES FIRST”

Ihor MITIUKOV, Ukraine’s former finance minister:

“Censuring the IMF means either a lack of professionalism, or politicking. The Fund merely indicates to the country’s extant or potential problems. The Fund offers advice on how to overcome them. If Ukraine buys natural gas at 400 US dollars per 1,000 cubic meters, and sells at 50 dollars, it is quite obvious that there is an urgent problem which needs to be solved as soon as possible. Playing ostrich man is no solution, because it keeps aggravating the economic situation. And this problem is not a sole example.

“An analysis of the entire history of our relations with this organization would show that it resulted in solving a lot of vital economic issues, for instance, the consolidation of budget and reduction of budget deficit. I believe that the IMF loans were a substantial support in hard times. Suffice it to recollect 2009, when Ukraine was badly hit by the world economic crisis (GDP plummeted at 15 percent), and the risk of devaluation loomed huge. Who gave us a hand back then? No one other than IMF, which helped keep the hryvnia-dollar exchange rate at eight to one. Those who will turn a blind eye are either insincere or have no idea of what they are talking about. Our cooperation with IMF is the necessary minimum, in terms of tasks that have to be completed in order to help economy grow. You can’t cook in a leaking pan. You have to mend the holes first.

“It is our right to decide if we should borrow from IMF or not, but we must always have access to this right, whenever we wish. Therefore, Ukraine’s further collaboration must start with resuming the dialog with IMF.”

“WE FAIL BECAUSE WE CANNOT KEEP OUR OWN PROMISES”

Borys SOBOLIEV, vice president, Ukraine’s Credit & Banking Union:

“An analysis of macroeconomic reform and growth of macroeconomic figures allows us to identify the optimum periods. There were two of them: after the introduction of Ukraine’s national currency, the hryvnia, and in early 2000, when the government and parliament adequately responded to the joint Ukraine-IMF programs, aimed at credit tranches. I mean, these programs were indeed implemented, and there were no attempts to deceive the IMF experts. By the way, I am utterly surprised when I hear people speak about an utterly ambitious IMF, which dictates to us what and when should be done. The practice of cooperation with this organization is basically as follows: there are no ‘IMF demands,’ but instead there is a program to reform the government and the National Bank of Ukraine. If the Fund approves of the reform plan, proposed by these bodies, it will subsequently allocate money and monitor the implementation of the program in this country. If nothing gets done, no more money is allocated in the future, that is it.

“IMF has a decisive role in Ukraine’s sustainable economic growth, because it does not only catalyze reforms, but also cures the country from chronic economic diseases in the short-term perspective. In the long-term perspective this is done by the World Bank. I believe the reason for our problems is not IMF but our failure to keep our own promises.”

“REFORMS SHOULD BE IMPLEMENTED. BUT IT IS EASIER TO PLACE THE BLAME FOR OUR PROBLEMS IN ECONOMY ON OTHERS”

Viktor SUSLOV, Ukraine’s former minister of economy:

“2008 was the most successful period. It is no exaggeration to say that IMF in fact saved Ukraine from default, when it promptly agreed to grant a stand-by loan. It is important that in this program the Fund made considerable concessions, allowing to use a part of the loan to cover the budget deficit. This had never been done before. And this is what rescued us. Ukraine is an IMF member, but it is not obliged to borrow from IMF. We ask for the loans ourselves, while a lender is traditionally interested in getting his money back. Therefore, a program of government-approved policies arises. Believe me, I know this procedure, the most part of the so-called ‘IMF conditions’ of such a program is in fact the proposals made by the government. You will never find the Fund’s clear-cut requirements in writing. The most you can come across is a memorandum with the government, the National Bank of Ukraine, and the Ministry of Finance on reforming certain aspects (for instance, the public expenditure, taxation, etc.).

“At any rate, reforms should be implemented. But it is easier to place blame for out the problems in economy on others. All the talks of the pernicious effects of the reforms, proposed by IMF, are empty, because each government has big powers and rights during such negotiations. If a country will not raise gas prices for the population, it must propose other mechanisms to decrease the deficit of the NJSC Naftogas Ukraine. We need to continue our cooperation with the Fund because its loans are the cheapest. But we have to use them to efficiently reform and upgrade the country’s economy.”

“THERE HAVE BEEN NO PARTICULARLY SUCCESSFUL TIMES OF COOPERATION, BECAUSE UKRAINE SLOWED DOWN THOSE REFORMS, WHICH INTERNATIONAL COMMUNITY WOULD BACK”

Volodymyr LANOVY, Ukraine’s former economy minister, president of the Center for Market Reforms:

“In 1991-92 the government’s contacts with IMF and the World Bank allowed it to plan diverse and huge investment, structural, and monetary projects in Ukraine, but it had stalled by 1996, as Ukraine had turned off the path of reforms. All hopes about Ukraine vanished into thin air. Thus, there have been no particularly successful times of cooperation, because Ukraine slowed down those reforms, which international community would back. All this despite the fact that money was allocated. In the 1990s and 2000s only bits and pieces of loans were allocated, but after 2008 large sums were appropriated, due to the crisis.

“I think it is no good to lay blame for your problems on others. The stalling reform is Ukraine’s domestic problem. Of course, any debt liabilities are bad for economy. But there are certain historical rules which cannot be evaded, and one of them is as follows: at early stages of establishment loans are absolutely vital. A transition from a totalitarian state (be it in Africa, Asia, or Europe) to a market economy will always be accompanied by losses such as deficits or failing foreign trade. This period requires a little assistance from creditors for two or three years. But after that, state must restore market economy without any help from the outside.

“In my view, in future the government should count on stimulating private lending and private investment, because typically such loans are never wasted, embezzled, and so on, whereas any loans granted to state (i.e., to oligarchs and their associates in the government) will only do harm to the country. This is why relations should be built so as to allow international lenders to help the private sector, while state provides adequate climate, reliability, government guarantees, etc.”

By Natalia BILOUSOVA, The Day