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.

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