Anders Aslund, a Swedish economist and a Senior Fellow at the Atlantic Council, commented on the current and future cooperation between the IMF and Ukraine. He claims that Kiev will have to implement at least 16 structural reforms in order to get another tranche from the International Monetary Fund. He also explained why the IMF is still cooperating with Ukraine.
The expert reminds us that on April 3, the IMF analyzed the progress made by the Ukrainian government in terms of implementing the promised reforms. As a result, the IMF found out that only 54 out of the promised 14 structural reforms where implemented. By the way, those reforms are a part of the cooperation program.
Nevertheless, Ukraine still got another tranche from the IMF, around 1 billion dollars in total. Given the fact that Ukraine failed to stick to the agreement in terms of implementing the reforms by still got the money, some experts started questioning the transparency of the deal between Ukraine and the IMF.
There is another curious thing. Instead of focusing on macroeconomic stats, the IMF put forward a range of less significant conditions for letting Ukraine get another tranche. That’s why the expert calls for investigating into what the IMF is actually doing. First of all, no international organization can compare with the IMF in terms of efficiency and responsiveness. The IMF has a lot more money than other financial peers. The local personnel are more skilled and ready for increasing challenges, even though they are paid more handsomely.
Moreover, the fund is well-run and has a clear mission. They are quick to react. After the Managing Director makes a decision, a team of experts goes to the country in question in a matter of days. The agreement is usually signed in a matter of 2 weeks at most. The IMF’s Executive Council also needs a couple of weeks to make the final decision, which means that the entire procedure doesn’t require a lot of time and the money is transferred the next day without having to follow some complicated schemes involving local governments, even if this is billions of dollars.
All in all, the IMF is designed to support economic stability in order to help various countries around the globe avoid a default and curb inflation. Still, often times, the IMF requires those countries to practice austerity with budget spending cuts and tough monetary policies for local central banks.
The IMF started helping Ukraine in March 2015. Back then, the fund planned to sponsor Ukraine with 17,5 billion dollars in total. The first tranche was equal to 5 billion dollars. This nearly doubled Ukraine’s currency reserves at that time. Hardly could any other financial institution have helped Ukraine that fast.
So, why did the IMF give Ukraine another tranche? The thing is, despite implementing all of the promised reforms, Ukraine did manage to implement the key macroeconomic reforms. To be more specific, the Ukrainian government did manage to balance the budget. At first, they used to expect a deficit equal to 3,7% of the GDP. However, the deficit was reduced all the way down to 2,3%, which is a considerable and even impressive achievement for Ukraine. Inflation also turned out to be slightly less than expected, which is another achievement, though less significant. At the same time, under tough economic and financial conditions, the local government also managed to stop the national currency from devaluing fast. Given this achievements, the IMF seems to have been impressed and that’s why they decided to give more money to help the Ukrainian economy recover.
