The International Monetary Fund has postponed its meeting, previously scheduled for March 20, in which it had planned to approve its next loan tranche for Ukraine worth $1 billion.
According to Ukraine’s Finance Ministry, the IMF first needs to “clarify calculations” regarding the economic impact of the latest events in Ukraine’s war-torn east.
The IMF’s four-year lending program worth $17.5 billion started on March 11, 2015. The expected $1 billion will be the fourth tranche that would bring total disbursements to $8.32 billion.
The IMF has not yet responded to the comment request from the Kyiv Post. However, the information about the earlier scheduled meeting disappeared from the fund’s website.
Seizure of Ukrainian enterprises by the Kremlin-led separatists on the territories, occupied by them, is one of those developments that will be discussed by Ukraine and the IMF. Another one is the decision of Ukraine’s government, made on March 15, to halt trade with the separatist-held territories until the separatists return Ukrainian companies they seized on March 1.
According to the Finance Ministry report, the IMF also needs to take into account the fact that Russia started recognizing passports illegally issued by Kremlin-led separatists in the occupied territories. Ukraine countered with sanctions on Russian banks in Ukraine.
“Clarification of these calculations is very important for both sides for maximum effectiveness of the program,” Ukrainian Finance Minister Oleksandr Danylyuk was quoted as saying. He added that the discussions on the matter will end “in the shortest terms.”
Ukrainian Prime Minister Volodymyr Groysman said in early March that the blockade of the railway in Donbas will result in $3.5 billion losses for Ukraine’s mining and metallurgy.
At that time, veterans of Ukrainian volunteer battalions and political activists have been for weeks blocking the shipment of coal and other goods from the separatist-controlled zone to government-held areas. They said that they would continue the blockade until all Ukrainian prisoners held by the Russian-backed separatists are returned to Ukraine.
According to the separatists’ leaders, this blockade by Ukrainian veterans led them to seize Ukrainian-owned businesses in Donetsk and Luhansk oblasts. Those included businesses owned by Ukraine’s richest man, oligarch Rinat Akhmetov. Also on the list were companies belonging to the Industrial Union of Donbas and some other private and state-owned companies.
Business analyst Timothy Ash reacted: “I guess the problem is that last week the government indicated that the blockade could cut real gross domestic product growth by 1.3 percent this year – assuming it continued. That’s a big number, but I guess the IMF had assumed the blockade would be temporary and resolved in a matter of weeks. But then Poroshenko followed this up by a formal ban on trade, likely making the impacts felt in a more permanent way. The fund, I guess, are now being cautious saying well if real GDP growth is actually halved then we need to think through how this changes the overall macroeconomic assumptions in the program and do some counter-measures need to be taken to ensure the fiscal and external sides remain consistent.
“I had doubted this delay would be that permanent, as likely the government would look either to downplay the impact, or we may see efforts over the next few days to cut some kind of deal to facilitate some trade across to (the Kremlin-separatist areas.) That said, this is now complicated by the fact that (the separatists) have assumed control over some assets in these areas, putting them beyond the control of Kyiv, and likely also this whole issue will further grate with the opposition at home. It is a bit tricky all around – and especially as now Kyiv will lay itself open to claims that its actions in (the separatist areas) run counter to the Minsk II peace process. Some Western governments might think that pushing the IMF to play tough here might soften the position of Kyiv, albeit that is difficult given domestic politics now unwinding at home.”
