View on Kyiv, Ukraine – Source : Pixabay, 2019
The Ukrainian President Volodymyr Zelensky held phone talks on 7 December with Kristalina Georgieva, Executive Director of the International Monetary Fund since October 1.
The president Zelensky presented the reforms carried out in Ukraine and discussed the modalities of a new financial aid program with the Fund. The Executive Director of the IMF welcomed the economic achievements of the country and the progress made in the implementation of the reforms by Kyiv under the leadership of the Prime Minister Oleksiy Honcharuk.
This discussion led Ukraine and the IMF to agree on a new financial assistance program for this country, which has been actively reforming since 2014. The agreed amount of the aid reaches 5.5 billion USD.
The Ukrainian president expressed his optimism in a statement:
“Our conversation with the IMF Managing Director Kristalina Georgieva has been very constructive. I am pleased that we have found full understanding and that our acceleration of reforms has been greatly appreciated by the IMF. I am grateful to Parliament, the government and our entire team for their hard work […]. The new cooperation program with the International Monetary Fund aims to accelerate economic growth, eradicate corruption and increase the well-being of every Ukrainian.“
Volodymyr Zelensky added:
“We are not satisfied with the current rate of economic growth, and therefore, to accelerate economic growth, we, along with our international partners, will continue reforms to catch up with our neighbours in terms of economic development and well-being.”
The Executive Director of the IMF commented:
“I was pleased to note that the IMF staff have reached an agreement with the Ukrainian government on policies to support a new three-year SDR 4 billion (approximately USD 5.5 billion) extended facility of financing. This agreement is subject to the approval of the IMF management and the approval of the Board of Directors, and the effectiveness of the arrangement will depend on the implementation of a set of prior actions.“
Kristalina Georgieva then spoke about the main actions to be implemented to unlock the potential for healthy economic growth in Ukraine:
“The President and I have agreed that the economic success of Ukraine depends crucially on strengthening the rule of law, enhancing the integrity of the judiciary, and reducing the role of vested interests in the economy, and that it is paramount to safeguard the gains made in cleaning up the banking system and recover the large costs to the taxpayers from bank resolutions.”
This agreement on a 5.5 billion USD loan program with the IMF reinforces the position of the President Zelensky, engaged in difficult negotiations for peace in Eastern Ukraine. He will meet with the leaders of Russia, France and Germany in Paris on December 9 for a “Norman Four” Summit, with the objective of further implementation of the Minsk Agreements and resolution of the conflict.
The Ukraine’s projected economic growth rate for 2019 reaches 3% and is expected to rise to 3.2% in 2020. The Parliament approved in November the state budget for 2020 with a deficit amounting to 2.09 % of the gross domestic product (GDP).
The country has benefited from about 10 IMF financial assistance agreements since 1992. Economic and judiciary reforms are underway since 2014.
The Ukrainian banking sector is one of the targets of the reforms. Its vulnerability was illustrated by the immediate and 100% nationalization of the first privately-owned bank of the country, Privatbank, on December 18, 2016. The Ukrainian Central Bank explained that this decision was made with the support of the international financial institutions to ensure the stability of the national financial system and the security of deposits. Privatbank was controlled by the oligarchs Igor Kolomoisky and Gennadiy Bogolyubov and has 20 million customers in Ukraine, half of the population.
The investigative firm Kroll, charged by the Ukrainian Government in 2017 to conduct the forensic audit of PrivatBank, confirmed that the bank was the object of large-scale and coordinated fraudulent actions, which resulted in severe financial losses, before its nationalization.
The IMF regularly asks Ukraine to recapitalize its banks, to strengthen their financial solidity. The international organization based in Washington has indeed its word to say since it has been providing significant support to Ukraine since 2014, with a plan amounting to 17 billion USD of loans.
Important work remains to be done in the cleansing of the Ukrainian economy so that the financial assistance of the IMF can be effective and limited in time.
Investors, Ukrainian and foreign ones, are asking for improvements of the business climate.
The commitment to reform expressed by the government and President Zelensky as well as the IMF support are therefore good signals.
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© Copyright 2019 – Swann Bigot, legal expert and consultant on emerging markets.