KIEV, Sept. 17 – In another sign of the deepening rift between Ukraine’s government and its central bank, a senior National Bank of Ukraine official said Thursday that the government must implement all reform measures that have been agreed with the International Monetary Fund or risk missing out on the fund’s next $3.1 billion “standby” loan installment, expected by year end.

“We have to implement all the commitments in order to obtain the loan,” Ihor Shumylo, head of the economic department at the National Bank of Ukraine, said.

President Viktor Yushchenko earlier took the government to task for failure to implement five out of six IMF demands, including the hiking of domestic natural gas prices.


The latest round of NBU criticism of the government of Yulia Tymoshenko follows closely on the heels last week of the announcement by Interior Minister Yuriy Lutsenko that his office planned to question NBU First Deputy Governor Anatoliy Shapovalov over the spending of the $10.9 billion the IMF disbursed to Ukraine between November 2008 and August 2009.

This development was followed by the defection of Oleksandr Savchenko, who resigned as a deputy governor of the central bank Wednesday to become deputy finance minister under Tymoshenko.

An IMF team is expected to arrive in Ukraine in October to check whether the government has adhered to the agreed reforms. The team was in Ukraine earlier this month, but little progress has been made over disbursement of the next installment.

The government hopes to receive $3.1 billion installment from the IMF before the end of the year in order to be able to meet the country’s foreign debt obligations.

The fund approved a $16.4 billion two-year standby loan to support Ukraine’s shrinking economy.

Tymoshenko, in order to receive a $3.3 billion installment from the IMF in early August, had promised to hike domestic gas prices by 20% on Sept. 1. The price hikes were seen as crucial for the health of the country’s energy sector.

But three weeks later – after the government already spent the money received from the IMF, mostly on foreign debts and gas supplies – Tymoshenko suddenly reversed herself and said there would be no price hikes.

Also, according to some analysts, the government has done did little to recapitalize the banking system with a number of banks facing severe liquidity problems due to the global financial crunch.

Nikita Mikhailichenko, an economist at Concorde Capital, a Kiev-based investment bank, said the IMF may delay disbursement of the next installment unless the government implements all conditions that have been earlier agreed.

Hiking domestic gas prices, cutting budget spending and rescuing two troubled banks, Ukrprombank and Nadra Bank, are probably the most important conditions, Mikhailichenko said.

Shumylo said the government should also clarify its forecast for the economic performance this year and next, in order to agree the forecast with the NBU’s monetary policy.

While Tymoshenko has officially forecast the economy to grow 0.4% on the year in 2009, a memorandum agreed with the IMF the government has forecast 14% contraction, Shumylo said.

“This document [memorandum], which has been signed by all parties, must be made public,” Shumylo said. “This is the economic program.”

The correction of the economic contraction forecast will allow seeing a realistic picture of budget deficit, and requiring either slashing spending or increasing borrowing targets.

“This will allow forecasting what is going to happen with the exchange rate and inflation,” Shumylo said. (tl/ez)