Ukraine seeks IMF programme extension

By bne IntelliNews October 12, 2012

bne -

Struggling to prop up its battered economy, Ukraine is hoping to gain an 12-month extension of its stalled $16.5bn 2010 stand-by loan agreement with the International Monetary Fund, which ends this month.

According to Iryna Akimova, deputy chief of staff of President Viktor Yanukovych, a delegation including Economy Minister Petro Poroshenko, Finance Minister Yuriy Kolobov and National Bank of Ukraine (NBU) head Sergey Arbuzov left for Tokyo on October 10 to meet IMF officials, reports Kommersant.

Following months of wrangling, Kyiv secured the programme in October 2011. However, it only managed to receive two tranches, for a total of $3.4bn, before the IMF halted the loans due to disagreements over the government's fiscal management. Representatives from the Party of Regions were quick to note that seeking an extension does not indicate willingness to compromise on the key stumbling block, namely raising household gas tariffs.

Stuck between initiating a huge hike in consumer gas bills ahead of parliamentary elections on October 28 and Russian leverage on gas prices to secure either control of Ukraine's gas transit system or the country's entry to the Customs Union, Kyiv continues to provoke a huge hole in the budget, and drain international reserves, via subsidies. That has helped put the hryvnya under massive pressure - the NBU spent $1.5bn to support the currency in September, a record-high for the last 12 months - and has investors fleeing the country in droves. The official end of the IMF backstop, even if it is frozen currently, would only antagonize the situation.

Brad Wells at Concorde Capital says he foresees potential success for the mission, albeit, that a resumption of loans is unlikely for the meantime. "We view an extension by the IMF as possible to keep dialogue open with Ukraine and on the potential that Ukrainian politicians soften their stance on the tough reforms it has called for after the October 28 parliamentary election," he writes in a note. "The Ukrainian government primarily seems bent on keeping their options open, and looks confident going ahead on their own without further IMF tranches at least through the rest of 2012 and as long as they can into 2013."

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