In a move designed to rescue the Ukraine from financial collapse the International Monetary Fund has readied up to $18 billion in rescue loans.
The loan will call for what Ukrainian officials have described as painful budget cuts and other measures. IMF official Nikolay Gueorguiev told a news conference at Ukraine's central bank that the country is expected to receive a total of $27 billion over the next two years.
The state gas company has already announced that the price of gas will rise more than 50 per cent on May 1 and will raise the price further under a timetable up to 2018. The IMF is demanding the end of gas subsidies as one of the many conditions for its loan.
During a recent visit to Washington the interim Ukrainian Prime Minister, Arseniy Yatsenyuk said at an Atlantic Council Forum: “The new Ukrainian government is ready to deliver changes, We fully realize that the IMF program is not a sweet candy, but on the other hand, my country desperately needs real reforms to stabilize the Ukrainian economy,” Other countries have agreed to follow the IMF loans with aid of their own. The European Commission plans to disburse $1.7 billion in grants and loans by June if the IMF deal is completed. The US is also intending to provide a billion dollar loan. Canada has also joined the bailout crew and is to provide $220 million in aid. The money will be administered as part of the larger IMF package.
Yatsenyuk has already indicated he is willing to become the most unpopular prime minister in history at the same time there are indications that he is requesting a more lenient approach. There are elections scheduled for the end of May. Many of the demonstrators in Maidan Square simply wanted a better life for themselves and their families. The measures required by the IMF and to some extent already taken will cut their pensions, services, and reduce their savings to a fraction of their former value. As the Wall Street Journal remarks: Ukraine's currency, the hryvnia, has fallen sharply since the country began floating its exchange rate in February. The IMF said Thursday that the hryvnia was previously overvalued and that Ukraine would need to preserve a flexible exchange rate to help the country boost exports and economic growth and rebuild its foreign-exchange reserves.
Of course the Journal accentuates the positive. The negative is that any savings in hryvnia have lost value and imported goods will become much more expensive for consumers. Ukraine needs to build up its foreign exchange reserves to pay off its debtors the $140 billion outstanding debt.
The Ukraine has already had multiple IMF loans which as this article points out have often made the economic situation much worse for the majority of Ukrainians. Recent loans were never completed because the Ukrainian government simply refused to follow through on the austerity measures required knowing they would probably result in political unrest. The Ukraine in spite of the iMF loans has fallen far behind Russia and Romania in economic growth and even more behind Poland: Ukraine’s gross domestic product adjusted for inflation today is at the same level as two decades ago, while that of Romania and Russia grew by 60 percent and Poland by 130 percent, Nielsen said.
The Ukrainian prime minister Yatsenyuk outlined a package of reforms that include tax increases and government spending cuts: These included a 10% cut in the number of state officials, a decrease in pensions for judges and prosecutors, and higher taxes on alcohol and tobacco products.
Without these reforms Yatsenyuk warned the country would go bankrupt and suffer a 10 per cent reduction in economic output this year. However, even with these reforms the decline would be about 3 per cent he said. Professor Chossudovsky perhaps gives a good summary of the IMF plan:
1) to facilitate the collection of debt servicing obligations, while ensuring that the country remains indebted and under the control of its external creditors.
2) to exert on behalf of the country’s external creditors full control over the country’s monetary policy, its fiscal and budgetary structures,
3) to revamp social programs, labor laws, minimum wage legislation, in accordance with the interests of Western capital
4) to deregulate foreign trade and investment policies, including financial services and intellectual property rights,
5) to implement the privatization of key sectors of the economy through the sale of public assets to foreign corporations.
6) to facilitate the takeover by foreign capital (including mergers and acquisitions) of selected privately owned Ukrainian corporations.
7) to ensure the deregulation of the foreign exchange market.
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