Pressure mounts on IMF to deliver Ukraine rescue programme
Team of the agency's experts in the country assessing its financial needs as the US and Europe consider rescue packages
Can the International Monetary Fund say “no” to Ukraine?
Called to the rescue by Kiev, the global crisis lender is under increasing pressure from all sides to give the green light to an aid programme, even as it risks its own credibility in doing so.
A team of IMF experts landed in Ukraine on Monday to launch discussions with the authorities, dissecting the economy’s problems and shaping an aid plan, even as the new government struggles with the threat of Russia in Crimea and says it needs “at least” US$15 billion.
An IMF loan does not appear to be imminent, but the expectation is heavy. On Sunday, finance ministers from the seven leading industrial powers – the G8 minus Russia – emphasised that the IMF is “best prepared” to lead a support programme for the country.
The United States, the country with the biggest voice in the IMF, has repeatedly said the IMF should be at the heart of any rescue programme.
Europe, also holding a strong voting position in the fund, has the same view.
“No member state will move without the IMF evaluating Ukraine’s financial needs,” a European source said on Monday.
The IMF said last week it was ready to respond to an official Ukraine request for help, just days after a new government took power in Kiev following the ouster of pro-Russian president Viktor Yanukovych.
But the IMF also has its strict operating rules and it must be careful not to offend some member states that have reproached it for having at times given in to Western pressures.
Under its internal rules, the IMF can only lend to a borrower in exchange for implementing austerity policies and a “viable” plan that would take the country’s public finances to the point that it will be able to repay.
But such rules were partly abused as the IMF and Europe sought to rescue Greece in 2010 amid political pressure and panic in the euro zone.
In last year the IMF admitted that it had approved a Greek programme that its own experts could not assure was viable.
The parallel with Greece has its limits. The debt built up by Athens reached nearly 143 per cent of the size of its economy in 2010, while Ukraine’s debt is less than 45 per cent of GDP, according to IMF data.
But some are still worried about the IMF giving in to pressure from its most powerful shareholders to bail out Ukraine.
“The fund must preserve its credibility and prevent itself from bending its own rules. The fund cannot afford to be seen as a political tool” of the Americans and Europeans, said Paulo Nogueira Batista, who represents Brazil and 10 other countries on the IMF executive board but said he was speaking for himself.
Moreover, Ukraine does not have a strong record with the IMF. It already has to repay US$4.5 billion before the end of next year, and a past aid program was halted after it backtracked on some promised reforms.
With the authorities in Kiev new in their jobs and the government still fragile, the same worries remain about how they will adhere to a new programme.
“The capability of Ukraine’s government to implement such a programme is, of course, a matter of everybody’s concern,” an IMF source said.
The IMF would not comment on questions about pressures on it for a Ukraine programme, but referred back to a spokesman’s insistence last week that it would deal with Ukraine with independence.
But internally, IMF sources acknowledge “huge” pressure to act on Ukraine.
Under mounting pressure, IMF Managing Director Christine Lagarde on Friday stressed the need to move calmly, saying there was no need to “panic” in rushing into a programme.
“We need to rely on facts,” she said.
According to former IMF official Desmond Lachlan, Western powers need to dig into their own pockets if they want to quickly help Ukraine.
“If the West wants to give money to Ukraine, it should come bilaterally from the main players. But the IMF would have to negotiate a proper programme,” he said.