Yesterday, the Executive Board of the IMF approved a two-year Stand-By Arrangement to provide $16.4 billion in financial aid to Ukraine “to help stabilize the domestic financial system against the backdrop of global deleveraging and a domestic crisis of confidence, and to facilitate adjustment of the economy to a larger terms-of trade shock.” The arrangement will provide “exceptional access to IMF resources equivalent to 802 perfect of Ukraine’s quota in the Fund.” The IMF previously announced its arrangement with Ukraine, however, the agreement remained subject to the adoption of anti-crisis legislation by the Ukrainian parliament which was approved late last week.
Mr. Murilo Portugal, Deputy Managing Director and Acting Chair of the IMF, noted that, “[t]he authorities’ program supported by the two-year Stand-By Arrangement with the IMF, aims to restore financial and macroeconomic stability by adopting a flexible exchange rate regime with targeted intervention, a pre-emptive recapitalization of banks, and a prudent fiscal policy coupled with tighter monetary policy. Resolute implementation of the program should help reduce inflation to single digits by the end of the program.”
The Arrangement provides for the implementation of the following measures by the Ukrainian government:
- Sound Monetary and Exchange Rate Policies: Adoption of certain measures designed “to improve the operation of the foreign exchange market, including cancellation of the foreign exchange transactions tax and more transparent intervention policy,” and a flexible exchange rate regime. Elimination of exchange rate controls.
- Financial Sector Policies: Recapitalization of financial institutions. Adoption of legislation to increase deposit insurance guarantees to cover approximately 99% of individual accounts.
- Prudent Fiscal Policies: Adoption of a “prudent fiscal stance” that will account for “the need for recession-related social expenditures, including higher funding for unemployment insurance and targeted income support.” Correction of present pricing policies mainly within the energy sector, and implementation of “a more balanced incomes policy by adjusting the minimum wage, pension and social transfer increases in line with the projected inflation in 2009.”
Olexandr Turchynov, the First Vice Premier of Ukraine, noted that the government could expect to receive the first tranche of stand-by credit before the end of the week.
Today the IMF also issued a statement “urging countries to stimulate their economies in the face of a bigger-than-expected slowdown in the global economy” and acknowledging that “[g]lobal action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
This weekend the G20 Finance Ministers will convene in Sao Paolo, Brazil to prepare for the global summit of G20 leaders to be held in Washington on November 15th.