Will IMF hold Ukraine to ransom over Tymoshenko?

By bne IntelliNews February 13, 2012

bne -

A US official announced on February 12 that any further International Monetary Fund (IMF) funding for Ukraine will depend on the level of democracy in the country. The statement is the first time that Kiev's stalled standby programme has been explicitly linked to the controversial political situation in the country, and puts the focus even more sharply on jailed opposition leader Yulia Tymoshenko.

"I think that such a link is inevitable. The readiness of the international community in its various forms to support Ukraine depends on the progress not only in the economy, but also in democracy," US Assistant Secretary of State for European and Eurasian Affairs Philip Gordon said in an interview with the TVi Channel, reports Interfax Ukraine.

Ukraine secured a $15bn bailout from the IMF in summer 2010, but the programme stalled in 2011, with the IMF's demand that the government raise gas tariffs the sticking point. Kyiv has been desperately trying to convince Russia to lower gas prices in order to solve the situation, but is still struggling, and restarted talks with the IMF in January.

"The International Monetary Fund usually focuses on concrete economic figures, but I must say that when a country breaks democratic principles, it becomes hard for international organizations, even strictly financial ones, to support such a state, especially when many countries are trying to obtain IMF loans," Gordon added.

The stance, if confirmed by the IMF, goes a step further than the precedent set recently with regard to Hungary. When Budapest approached the IMF, the international lender retorted that it would not discuss a loan programme without the agreement of the EU, which would be a partner in any financing plan. For its part, Brussels has demanded the reversal of recent legislation including perceived pressure on the judicial system, which is clearly not a strictly financial issue.

In Ukraine, although Brussels is not involved, going by Gordon's comments the link looks even starker, and suggests that the US will not sign off on IMF funding unless former Prime Minister Yulia Tymoshenko is released. That suggests an agreement in 2012 is unlikely.

Related Articles

Ukraine's largest PrivatBank faces down nationalisation fears

Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335