IMF chief joins US calls for faster Ukraine reforms

IMF chief joins US calls for faster Ukraine reforms
Ukraine's Petro Poroshenko with IMF chief Christine Lagarde.
By bne IntelliNews September 22, 2016

The International Monetary Fund joined the US administration in stepping up pressure on Ukraine’s leadership to speed up reforms, with IMF managing director Christine Lagarde meeting President Petro Poroshenko in New York to discuss further credits to the country amid mounting frustrations among its Western backers.

The meeting on September 21 came on the same day the US Vice President Joe Biden warned that the sluggish reform pace is driving calls in the EU to drop the sanctions against Russia, imposed after Moscow annexation of Crimea in 2014.

Lagarde “strongly encouraged continued implementation of the authorities’ economic reform programme” at her talks with Poroshenko, the Fund's head of communications Gerry Rice said in a statement.

The Ukrainian presidential press service said that Poroshenko and Lagarde agreed on the arrival of a new IMF mission in Kyiv in autumn this year.

The meeting followed the decision of the IMF executive board on September 14 to release a further $1bn tranche to Ukraine from the lender’s stalled $17.5bn bailout package, ending an almost year-long halt in funding.

Also on September 21 and after his own meeting with Poroshenko, Biden told the Council of Foreign Relations in New York that some EU are ready to start lifting the bloc's sanctions against Russia in frustration over the slow pace of Ukrainian reforms.

“We know that if they give an excuse to the EU, there are at least five countries right now that want to say ‘we want out’ of sanctions against Moscow," Reuters quoted Biden as saying. “There’s an overwhelming instinct in Europe to say: ‘Hey, before [Poroshenko] became president, this was owned by Russia anyway. They had a puppet there. What difference does it make? What the hell’s the difference? Why are you making us engage in these sanctions?’”

According to the Ukrainian presidential media office, at the earlier meeting with the US vice presidfent “Poroshenko thanked the US for strengthening sanctions against Russia. The sides agreed to intensify diplomatic efforts to end the Russian aggression against Ukraine.”

The extension of the sanctions regime, which the EU extended in July for six months until its next review in December, is an increasingly divisive issue within the bloc, with calls for an end to the measures growing among countries hardest hit by Russia's retaliatory food sanctions. However, EU leaders Germany, France and UK say the sanctions must remain in place.

Biden said he spent up to three hours a week on the phone with Ukrainian leaders since the crisis in the country began, urging them to push on with reforms, while also pressuring EU countries to hold fast on sanctions.

There is “an isolationist wave” in the West that will face its next test during the US presidential election in November, Zenon Zawada, an analyst at the Concorde Capital brokerage in Kyiv, said in a research note on September 22.

“We think a possible election of Donald Trump as US president could turn the tide towards removing sanctions for the annexation of Crimea,” Zawada said. “Though that will face resistance in the US Congress, his Russia detente rhetoric will provide the grounds for skeptical Europeans to begin to relinquish on sanctions.”

Meanwhile, a Ukrainian government resolution published on September 22 said that Kyiv intends to issue sovereign Eurobonds under US guarantees, and which were tied to the released IMF tranche, by the end of September for five years at up to 2.5%.

“Waiting news on the close to €680m EU macro financial support package. I am assuming that this still gets signed off by year end,” Nomura International strategist Tim Ash wrote in a note on September 22. While there has been talk of another IMF disbursement before year end, this is ambitious as it will need agreement first over the budget for 2017, as well as more clarity in terms of pension reform, continued progress in cleaning up the banking sector, Ash added.