Ukraine claims to be seeking fresh IMF loan

By bne IntelliNews January 15, 2013

bne -

Ukraine is seeking a fresh $15bn loan from the International Monetary Fund (IMF) to replace the 2010 programme that has been frozen for the past two years, an official said on January 14.

First Deputy Prime Minister Serhiy Arbuzov told reporters that he will hold negotiations on a new loan with IMF delegates who are due to arrive in the capital on January 24. Asked whether it will be a new programme, Arbuzov was quoted by Interfax as replying: "We're going to discuss the terms of a new programme".

"Concerning the IMF, we plan, as previously, to discuss the sums, documented in the previous memorandum - some 10 billion in SDR's [around $15bn]," Arbuzov announced. "Therefore, we will abide by this limit in talks with the mission to arrive here, I'm sure. Nothing has changed to prompt a revision of the sum." Arbuzov's office declined immediate follow-up comment, according to AP.

Many economists worry that the Ukrainian economy is heading toward recession due to waning demand for the country's main export, steel. The national currency, the hryvna, has also weakened in recent months, and reserves have been draining rapidly. To that end, the National Bank of Ukraine implemented mandatory currency sales requirements on exporters late last year.

Analysts doubt a quick deal with the IMF is likely to be agreed due to Kyiv's continued reluctance to implement unpopular austerity measures, most notably a hike in household gas tariffs. National gas company Naftogaz is the source of a huge hole in the budget due to the subsidies it requires in order to sell the expensive gas it imports from Russia to the population at reduced prices. It was that key issue that saw the previous IMF aid programme frozen after the disbursement of just $3.4bn. That stand-by arrangement was terminated in late 2012.

With parliamentary elections held late last year, a large tariff rise was never going to happen. Now, analysts suggest that the government will wait at least until the end of the cold season to make any move that would raise heating bills.

Ivan Tchakarov of Renaissance Capital suggests Kyiv will hope to delay the move as long as possible in the hope that the new year will bring improvements that will allow it to avoid the issue altogether. "A better global backdrop in 2013 may blunt government incentives to re-engage the IMF," he said in a note last week. "The ruling Party of Regions has all the incentives to drag its feet and not enforce electorate confidence-busting measures until the all- important 2015 presidential elections ... Rising external pressures may still likely bring Ukraine back to IMF's embrace, but this may happen well after the winter season is over."

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