On Friday, Ms. Ceyla Pazarbasioglu, IMF Mission Chief to Ukraine, held a press conference to discuss the status of Ukraine’s economic program. During the conference, Ms. Pazarbasioglu confirmed that that the IMF is working with Ukrainian officials to identify “the next steps and measures that will pave the way for the conclusion of the [IMF’s] first review under the Stand-By Arrangement.”. In November, the IMF entered into 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.” However, last month the IMF withheld its second installment of aid under the Stand-By Arrangement due to the government’s inability to agree upon several outstanding issues that were conditions to its receipt of IMF aid, including “how to contain the general government deficit.”
Amidst the back-drop of the economic crisis, Ukraine has been facing on-going political infighting, often hindering the government’s efforts to address the crisis. A statement by the IMF released earlier last month indicated that “[s]ince the adoption of the IMF supported program, the global economic environment has deteriorated markedly. Ukraine’s economy has not been excluded from this process. The economic situation remains difficult associated with decline in demand for steel products and the sharply reduced access to international capital markets.” Currently, the IMF is working with the Ukrainian government on arriving to a “joint declaration” declaring its commitment “to collaborate and move the economic program forward,” which the IMF has indicated the government must do before receiving the second installment of aid.
When the framework of Ukraine’s economic program was first designed in October, it encompassed a preemptive bank recapitalization strategy. Since that time, in light of the deteriorating global economic market conditions the IMF has revised Ukraine’s outlook for GDP growth in 2009 from minus three percent to minus six percent. Over the past several weeks the IMF has met with Ukrainian government officials and “focused on the implementation of a comprehensive Bank Resolution Strategy, which is a key component of the program; exchange and monetary policies; and the appropriate fiscal stance for 2009.” The IMF has noted that the implementation of the Bank Resolution Strategy is “key to restor[ing] confidence in the financial sector, to star[ing] bank lending, and to facilitate[ing] economic or recovery.” The National Bank of Ukraine (NBU) has been instrumental in implementing the “diagnostic phase” of the Banking Resolution Strategy which includes conducting a diagnostic study of “each bank based on agreed-upon principles.” Given the growing tensions arising within Ukraine’s government, Ms. Pazarbasioglu highlighted the importance of the coalition partners’ appointing one “high-level” official to coordinate with the NBU in implementing the Bank Resolution Strategy.
The IMF has stated that it supports the Ukrainian government’s efforts to “raise additional funding from multilateral and bilateral creditors” and agrees with the government’s recent estimate that it will need an additional $5 billion in financing, while noting that “even more limited amounts” would permit the government to “reach a fiscally sustainable stance.”