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Ukraine and the International Monetary Fund

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Ukraine has been a member of the International Monetary Fund (IMF) and the World Bank since 3 September, 1992. The country is one of the IMF's four largest borrowers.[1]

History

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Independence–Yanukovych

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Ukraine became a member of the IMF and the World Bank on 3 September, 1992.[2] The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the three-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and structural-reform commitments caused the EFF to be suspended or its disbursements delayed several times. The last EFF disbursement was made in September 2001. Although Ukraine met most monetary targets for the EFF disbursement which was due in early 2002, the tranche was not disbursed due to the accumulation of large VAT-refund arrears to Ukrainian exporters (which amounted to a hidden budget deficit). The EFF expired in September 2002, and the government of Ukraine and the IMF began discussions the following month on the possibility and form of future programs.

The IMF granted Ukraine a $16.4 billion loan in October 2008,[3] of which the government had received $10.6 billion in May 2010.[4] Further payments were frozen in late 2009, after Ukraine raised minimum wages and pensions contrary to IMF recommendations.[5]

Ukraine was the IMF's third-largest borrower in May 2010, after Romania ($12.5 billion) and Hungary ($11.6 billion).[4] The IMF approved a 29-month, $15.15 billion loan to Ukraine on 28 July, 2010.[6] Among other effects, this led to a 50-percent increase on household natural gas utility prices in July 2010 for Ukrainian consumers (a key demand of the IMF in exchange of the loan).[7][8] The Fund said on 20 December, 2013, that the second Azarov government had only partially implemented the 2010 agreements, "and in this connection the program had not been implemented".[9]

In December 2013, Ukrainian Prime Minister Mykola Azarov noted "the extremely harsh conditions" of a renewed IMF loan presented by the Fund on 20 November of that year. The conditions, which included steep budget cuts and a 40-percent increase in natural-gas bills, were the last argument supporting the Ukrainian government's decision to suspend preparations to sign the Ukraine–European Union Association Agreement on 21 November, 2013.[10][11][12] The decision to postpone signing the agreement led to the Euromaidan protests.[13][nb 1] On 7 December, 2013, the IMF clarified that it was not insisting on a 40-percent single-stage increase in natural-gas tariffs; the Fund recommended a gradual increase to an economically-justified level, with compensation to the poor in the form of increased social assistance.[20] On 10 December, 2013, Ukrainian president Viktor Yanukovych said: "We will certainly resume the IMF negotiations. If there are conditions that suit us, we will take that path".[21] However, Yanukovych repeated that the IMF conditions were unacceptable: "I had a conversation with U.S. Vice President Joe Biden, who told me that the issue of the IMF loan has almost been solved, but I told him that if the conditions remained ... we did not need such loans".[21] In December 2013, Ukraine again applied to the IMF for about $20 billion to meet the costs associated with signing the Ukraine–European Union Association Agreement.[22]

Post-Maidan

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In February 2014, Yanukovych and Azarov were overthrown and replaced by the first Yatsenyuk government.[23] The following month, the IMF required Ukraine to reform its natural-gas price subsidies in return for an aid package of about $15 billion.[24] One of the expected effects was a 50-percent price increase for natural gas sold to domestic consumers.[24] The increase was expected to become effective on 1 May as part of a set of intertwined contingencies required by the IMF to provide financial support to Ukraine.[24] The European Union required Ukraine to secure the IMF aid package in return for about €1.6 billion in EU support.[24] Before the increase, all natural gas bought by the government of Ukraine was resold to consumers with government subsidies at below-market prices.[24] Gas prices for district heating companies were also expected to rise by 40 percent on 1 July. Anders Aslund, a former economic adviser to the Ukrainian government, believed that Ukraine's expenses could be reduced by two percent of its gross domestic product if gas subsidies were halted.[25] On 27 March, 2014, the IMF announced that it would issue a $14-18 billion rescue package for Ukraine;[26] in return, the Fund demanded that Ukraine establish an anti-corruption bureau.[27] The previous day, Ukraine announced that household natural-gas prices would rise by 50 percent on 1 May, 2014.[26] On 4 September of that year, Ukraine received $1.39 billion from the IMF.[28]

On 11 March, 2015, the Fund approved a four-year, $17.5 billion EFF for Ukraine; its first tranche of $5 billion was forwarded on 13 March, 2015.[29] The second $1.7 billion tranche was transferred on 4 August, 2015.[29] The third tranche would be released after a review of the EFF, in which the IMF wanted to see a decrease in corruption.[29] The third, $1 billion tranche was agreed to be forwarded on 15 September, 2016, despite Russian opposition. Russia opposed the decision because, since December 2015, Ukraine had defaulted on a $3 billion debt payment to Russia.[30][31][32] The fourth tranche was forwarded in spring 2017.[33] Because of a 2017 memorandum between Ukraine and the IMF, only pension reform was achieved and the country received no further financing from the Fund.[33]

On 21–29 May, 2019, an IMF mission led by Ron van Rooden visited Kyiv to discuss recent developments and economic policies regarding the Fund. At the end of the visit, it concluded: "The IMF staff team has had very productive discussions with the Ukrainian authorities, including with President Zelenskyi, on the review of Ukraine’s Stand-By Arrangement with the IMF. The team has found that fiscal and monetary policies remain on track, and it stands ready to return to Kyiv to continue discussions after the forthcoming parliamentary elections as soon as a new government has clarified its policy intentions".[34]

In late September 2019, an IMF mission left Ukraine without securing a new deal.[35] The 2019 Ukrainian parliamentary elections had taken place, and the Honcharuk government (led by Oleksiy Honcharuk) had been formed on 29 August.[36] After the September visit, the IMF said: "Growth is held back by a weak business environment—with shortcomings in the legal framework, pervasive corruption, and large parts of the economy dominated by inefficient state-owned enterprises or by oligarchs—deterring competition and investment".[35] In mid-October 2019, a Ukrainian delegation visited Washington to continue talks with the IMF about a new lending program.[35]

On 10 June, 2020, IMF's executive board has approved an 18-month, $5 billion standby arrangement for Ukraine.[37] Ukraine immediately received about $2 billion, while the remaining amount is planned to be disbursed in phases over four reviews during an 18-month period.[37] In order to qualify for the loan deal Ukraine's parliament had voted to lift a ban on the sale of farmland and approved a new banking law (which was designed to prevent Ihor Kolomoiskyi and Hennadii Boholiubov from regaining control of PrivatBank).[38]

2022 Russian invasion of Ukraine

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See also: Economic impact of the 2022 Russian invasion of Ukraine

On 5 March, 2022, the International Monetary Fund said it anticipated to forward Ukraine's request for $1.4 billion in emergency finance to its board for approval as soon as next week.[39]

See also

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Notes

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  1. ^ The economic portion of the agreement was signed on 21 March, 2014,[14][15][16][17] and the remainder was signed on 27 June of that year.[18][19]

References

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  1. ^ "The IMF at a Glance". IMF. Retrieved 2019-06-20.
  2. ^ Ukraine: The Search for a National Identity, Sharon Wolchik, Rowman & Littlefield Publishers, 2000, ISBN 0847693465, page 55
  3. ^ IMF Props Up Hungary and Ukraine as Crisis Continues, Spiegel.de (27 October 2008)
  4. ^ a b Government to direct most of International Monetary Fund's loan to currency reserves, Kyiv Post (12 May 2010)
  5. ^ UPDATE 2-Ukraine seeks to overhaul IMF deal, tough talks ahead, Reuters (24 March 2010)
  6. ^ IMF Executive Board Approves US$15.15 Billion Stand-By Arrangement for Ukraine, International Monetary Fund (July 28, 2010)
  7. ^ With IMF deal done, Yanukovych’s challenges still ahead, Kyiv Post (July 29, 2010)
  8. ^ Gas price hike to raise tension in Ukraine, Kyiv Post (July 29, 2010)
  9. ^ IMF slams Ukraine's macroeconomic policy, Interfax-Ukraine (20 December 2013)
  10. ^ "IMF will consider 'Ukrainian issue' on Dec 16". Interfax-Ukraine. 9 December 2013. Retrieved 10 December 2013.
  11. ^ David M. Herszenhorn (22 November 2013). "Ukraine Blames I.M.F. for Halt to Agreements With Europe". New York Times. Retrieved 10 December 2013.
  12. ^ Ambrose Evans-Pritchard (22 November 2013). "Historic defeat for EU as Ukraine returns to Kremlin control". Daily Telegraph. Retrieved 10 December 2013.
  13. ^ "Ukraine still wants historic pact with EU". Oman Observer. Archived from the original on 25 January 2014. Retrieved 27 November 2013.
    Ukraine police dismantle Kiev protest camps, BBC News (9 December 2013)
  14. ^ "Ukraine crisis: EU signs association deal". BBC News. 21 March 2014. Retrieved 21 March 2014.
  15. ^ eeas.europa.eu: "Signatures of the political provisions of the Association Agreement" 21 Mar 2014
  16. ^ "Ukraine to sign political aspects of EU pact on Friday". Reuters. 2014-03-17. Retrieved 2014-03-19.
  17. ^ Croft, Adrian (21 March 2014). "European Union signs landmark association agreement with Ukraine". Reuters.
  18. ^ EU signs pacts with Ukraine, Georgia and Moldova, BBC News (27 June 2014)
  19. ^ EU, Ukraine to sign remaining part of Association Agreement on June 27 – European Council, Interfax-Ukraine (16 June 2014)
  20. ^ MF not insisting on single-stage increase in tariffs, says resident representative in Ukraine, Interfax-Ukraine (7 December 2013)
  21. ^ a b Ukraine to resume talks with IMF soon, says Yanukovych, Interfax-Ukraine (10 December 2013)
  22. ^ [1], Enria (18 December 2013)
  23. ^ Ukraine crisis timeline, BBC News
  24. ^ a b c d e "Ukraine agrees to 50% gas price hike amid IMF talks". BBC News. 26 March 2014. Retrieved 26 March 2014.
  25. ^ "Ukraine can now fix its economy – if it moves fast - FT.com". Financial Times. ft.com. 25 February 2014. Retrieved 2014-03-29.
  26. ^ a b http://www.ft.com/cms/s/0/737e3bd8-b587-11e3-81cb-00144feabdc0.html#axzz35r6JLhpy(subscription required)
  27. ^ (in Ukrainian) In Kyiv showed what the Anti-Corruption Bureau, Ukrayinska Pravda (8 September 2014)
  28. ^ Ukraine gets second tranche from IMF under Stand-By Arrangement, Interfax-Ukraine (4 September 2014)
  29. ^ a b c IMF expects more anti-corruption efforts from Ukraine - Vacher, UNIAN (10 March 2016)
  30. ^ IMF Approves $1 Billion Loan For Ukraine After One-Year Delay, Radio Free Europe (15 September 2016)
  31. ^ No IMF Money For Ukraine, Russia Says, Forbes (14 September 2016)
  32. ^ [2] Yahoo News. Published 18 December 2015. Retrieved 2 February 2016.
    [3], AP News (18 December 2015)
  33. ^ a b [https://economics.unian.info/2325981-weeks-balance-thorny-road-to-bright-economic-future.html Year’s balance: thorny road to bright economic future, UNIAN (30 December 2017)
  34. ^ "IMF Staff Concludes Visit to Ukraine". International Monetary Fund. 30 May 2019.
  35. ^ a b c Ukraine Court Halts PrivatBank Hearing, Radio Free Europe (October 17, 2019)
  36. ^ "Ukrainian Lawmakers Approve Political Novice Honcharuk As Prime Minister". RadioFreeEurope/RadioLiberty. Retrieved 2019-08-29.
  37. ^ a b IMF Approves $5 Billion In Aid For Ukraine To Shore Up Economy Wracked By Coronavirus, Radio Free Europe (10 June 2020)
  38. ^ IMF praises Ukraine's decisions on land reform, banking law, Reuters (4 April 2020)
    IMF finally confirms new $5 billion program for Ukraine by Anders Åslund, Atlantic Council (10 June 2020)
  39. ^ Shalal, Andrea; Lawder, David (5 March 2022). "IMF says war in Ukraine will have 'severe impact' on global economy". Reuters. Reuters. Reuters. Retrieved 5 March 2022.
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