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article imageOp-Ed: Even World Bank admits IMF loans to Ukraine will cut growth

By Ken Hanly     Apr 11, 2014 in World
Kiev - The World Bank warns that the conditions set by the IMF for granting loans to the Ukraine will have very damaging effects on the Ukraine economy and cut consumption considerably.
The Bank claims that the terms set by the IMF will cut consumption in Ukraine by 8 percent. No doubt this will in part be the result of goods becoming more costly through the decline in value of Ukrainian currency as the IMF demands that the value be market determined. There also will be cuts to wages and pensions and many public workers will be terminated. The Bank also worries that the reduced consumption will result in less capital investment in Ukraine. The statement by the Bank notes that the higher costs of gas and heating “will affect purchasing power and limit the government’s ability to boost capital spending this year. Thus, in 2014, we expect to see a decline in both consumption and fixed investment.” The price of gas is to increase by 50 percent on May 1. Russia is threatening to turn off the gas if Ukraine does not pay for what it already owes which is in the billions. The Bank also expects that in 2014 there will be a recession in the Ukraine with GDP declining by 3 per cent while inflation will increase to 15 per cent. The Ukrainians may share the experience of Greeks under the IMF austerity regime. The IMF has agreed to grant Ukraine between $14 billion and $18 billion over the next two years to avoid default.
This agreement will encourage other sources such as the EU and US to grant billions more with the total coming to about $27 billion over the next two years.The Bank said that if structural reforms were implemented quickly growth could return to 3 per cent in 2015. The first installment on the loans of $3 billion may happen as early as this spring.
The interim finance minister Oleksander Shlapak said that Kiev has already fulfilled all the conditions to receive the first part of the IMF aid package. He told journalists at a World Bank IMF meeting in Washington : "We're here to speak in more specific terms about time and conditions of (international) support," The Ukrainian parliament has already agreed to the IMF conditions. The head of the IMF Christine Lagarde said she is confident that the Ukraine would meet the conditions set by the IMF and that the economy would stabilize.
The IMF has lowered its prediction for global growth to 2 per cent in 2014. China will grow at about 7.5 per cent and India at 5.4. Russia's growth will fall to 1.3 per cent this year. The US will grow by 2.8 per cent, Germany by 1.7 per cent, The UK is expected to grow at 2.9 per cent. Japan's growth will be a little above Russia's at 1.4 per cent. Lagarde also said that the Ukraine crisis, slower growth in emerging economies, possible deflation in the Eurozone, and market turbulence were hurdles to the extension of the global recovery. If Russia occupied parts of eastern Ukraine resulting in draconian sanctions against Russia the global outlook for growth would no doubt be much bleaker except perhaps for the military-industrial complex.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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