Ukraine Reports

IMF to Ukraine: Measures to feed people violate The Market
Tue, 1 Aug 2000 12:33:03 -0400

From the World Bank's "Development News" summary ... this contains two items of interest, the main one being the IMF's demand that the Ukrainian government's move to ensure enough food for its people be abandoned because it means violating the sacrosanct market principles it has formally agreed to uphold. The other is the acknowledgement by the Ukrainian Deputy Prime Minister that the most important thing for the country is not the actual money the IMF provides, but the signal that the provision of that money sends to other creditors — certification of the country's credibility. Referred to as the "gatekeeper" function, it is here that the IMF's most important power lies. It is this capacity to suspend a country from the world economy that makes the IMF so dangerous.


A delegation from the Ukrainian government flew to Washington to smooth over a new rift in its relations with the IMF, which is worried that the country could be reversing agricultural reforms and re-monopolizing its grain market, reports the Wall Street Journal Europe. The mission, led by First Deputy Prime Minister Yury Yekhanurov, had hoped to deliver an upbeat progress report on how the Ukrainian government has been putting its house in order during the past six months as the IMF investigated allegations that past loans to Ukraine were diverted. Instead, Yekhanurov's team will be explaining a new batch of grain-trading regulations that, according to a letter co-signed by an IMF official, "destroys the government of Ukraine's credibility in agricultural policy reform."

In late June, President Leonid Kuchma signed a decree ordering the government to introduce a variety of restrictions on grain trading, which his administration says are aimed at stabilizing grain prices by discouraging traders from exporting grain too cheaply during the harvest season. Because of record poor harvests, Ukraine this year was forced to import grain, which led to higher bread prices.

But the regulations have drawn sharp criticism from the IMF and others, who argue that they undercut recent market reforms. A July 17 letter to the president's administration signed by the US ambassador and the heads of the IMF and World Bank offices in Kiev said the decree "sends an alarming signal both to policy makers and private investors abroad. Only two months after making a policy statement that the government of Ukraine would not interfere in the grain and input markets, it is reinstating what is, in effect, a state order system." The letter went on to warn that the decree could stall Ukraine's negotiations with the Fund and the Bank on new loans, "damage" Ukraine's efforts to join the WTO and might lead the US to "consider cessation of all bilateral US technical assistance in agriculture."

Yekhanurov said he remained optimistic about his visit, notes the story. "We are phrasing the question this way: We want the IMF to announce that it will resume lending, but we don't need the money immediately," he said in an interview Friday. His government has learned to live without foreign credits during the six months since the IMF launched an investigation into allegations that Ukraine misused loans received in 1996-1998, he said, and by cracking down on barter deals and eliminating various tax exemptions, the government has increased revenue enough to clear off its pension arrears-something previous governments couldn't do even with foreign aid.

Yekhanurov says his government wants the IMF's nod of approval to help draw new foreign investment, restructure old debts and speed up reforms. "Even just one dollar would be enough," he said. "What we need is recognition that we are moving in the right direction." Ukraine is trying to persuade the IMF to unlock a $2.6 billion credit line that has been frozen since September, the story says. About $1.6 billion of that amount remains to be disbursed.

It would "take some time" to work out differences with the IMF over agricultural policy, Yekhanurov said. The government said last week that it had reached an agreement with the Fund and the Bank on the new grain-trading rules and had ordered local officials not to interpret them as a license to intervene on the grain market. However, Gregory Jedrzejczak, who signed the July 17 letter on behalf of the World Bank, said local officials continued to use the new rules as grounds to control grain trading. He said the IMF and the World Bank had formed a commission to work out their differences, "But we are not their yet. Our position remains the same."

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