Ukraine confirms return to IMF talks

By bne IntelliNews January 27, 2012

bne -

Deputy Prime Minister Sergiy Tigipko confirmed on January 26 that Ukraine will resume negotiations with the International Monetary Fund (IMF) on restarting the country's $15.5bn standby loan programme in a fortnight or so. The statement follows a visit by a Ukrainian delegation headed by new Finance Minister Valeriy Khoroshkovsky to Washington DC to meet with IMF officials earlier this week.

Tigipko however reaffirmed that the government will not hike domestic gas tariffs, which is one of the IMF's main conditions for resuming the programme due to the huge budget deficit created by the current government subsidies. Tigipko said Kiev is considering different options to compensate the budget, but offered no details.

"Tigipko's statement is quite discouraging as he was one of the first policymakers to call for resuming IMF financing for Ukraine," write Dragon Capital analysts. "With gas negotiations with Russia stalled and reports suggesting Russia is not interested in completing them before the presidential elections in March, Ukraine has little choice but to agree on further lending support with the IMF in order to reduce its macro risks and thereby gain access to foreign markets."

"We see little chance of Ukraine resuming cooperation with the IMF in the coming months but think that if Ukraine's external accounts deteriorate and hryvnya pressure starts to mount, the government might be forced to take socially unpopular actions to secure new loan tranches" suggest analysts at Concorde. "A potential gas deal with Russia would also help break the impasse in IMF-Ukraine negotiations as an import gas price discount for Ukraine might alleviate the need for a sizable tariff increase for households."

Other analysts have suggested that Kiev hopes to ward off market pressure and encourage Moscow to come to an agreement with its suggestions that it is ready to talk to the IMF once more. Meanwhile, so the theory goes, the Yanukovych administration will try to make it through to April - the end of the heating season - before hiking gas tariffs and resuming the standby programme.

Ukrainian Prime Minister Mykola Azarov met with IMF Managing Director Christine Lagarde yesterday in Zurich, with the pair pledging to continue an active dialogue on the technical team level until a breakthrough is reached. The two sides are due to resume talks in "two to three weeks" according to newswires.

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