So far, the IMF is giving Ukraine a passing grade on early efforts at political and economic reforms as it spends its first installment from a four-year, US$17.5 billion loan program. However, Russian President Vladimir Putin holds the trump cards in Ukraine’s drive to extract itself from Moscow’s orbit.
Until Wednesday, there had been a lull in the war between Ukrainian forces and Moscow-backed Russian separatists in the key industrial and coal-mining region in eastern Ukraine. The heavy fighting begun on Wednesday had diminished by the end of the week, and it appeared that Putin was not ready yet to play his trump card. So far, more than 6,400 people have died in the on-again-off-again battles that have severely damaged the Ukrainian economy and disrupted critical trade with Moscow.
Carnegie Endowment vice president of studies Andrew Weiss said the IMF is in a race against time.
“The fragility of the Ukrainian state is such that if Moscow significantly ratchets up the pressure it may be very hard for [Ukrainian President Petro] Poroshenko to deliver on ambitions for significant economic reform and changes in the political system,” Weiss said. “If you take that pressure alongside of the bad habits and business-as-usual conduct of the Ukrainian elite who have led the country for most of the past 25 years, the prospects for the reformist movement in Ukraine look quite challenging.”
The IMF sees things differently.
At the end of an assessment visit from May 12 through Friday last week, IMF Ukraine mission head Nikolay Gueorguiev said goals set for Ukraine in March had been met and “all structural benchmarks due in the spring are on course to be met, albeit some with a delay.”
The IMF was not specific about goals.
Even so, Gueorguiev issued a mixed first review of Ukraine’s progress in using the fund’s first US$5 billion tranche of the loan to turn around the former Soviet republic’s slide into bankruptcy and to root out corruption that is pervasive.
The bad news: The IMF projected a 9 percent contraction in the Ukrainian economy this year, with inflation surpassing 46 percent. The good news: The shrinking GDP forecast actually suggested signs of stabilization, given that it includes a 17.6 percent contraction in the first quarter of this year.
Gueorguiev said the Kiev government’s “commitment to the reform program remains strong.”
The IMF put Ukraine under what is known as an Extended Fund Facility, the US$17.5 billion loan program, after earlier and more limited IMF assistance programs failed under the leadership of pro-Russian former Ukrainian president Victor Yanukovych.
Ukraine had been under Moscow’s thumb because of a deep history of trade links during the Soviet era — and the bulk of its energy supplies has come from Russia. Now the country is struggling to build a system of other suppliers.
At stake for the 188 member-nation IMF is repayment of the loan. The government must show it is meeting goals for the next tranche of US$1.7 billion.
“In recent months, signs that economic stability is gradually taking hold are steadily emerging,” Gueorguiev said in his statement about the review.
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