IMF insists on its vision of anti-corruption court while Ukraine still haggling

The IMF is awaiting more progress from Ukraine before
it can conclude the fourth review of its Extended Fund Facility loan program,
spokesman Gerry Rice told a May 17 press briefing in Washington. He reiterated
the fund’s official position is that progress should be made in the energy
sector (residential prices of natural gas should be determined by the market)
and the fiscal sector, while the most crucial issue is the adoption of
legislation creating an independent anti-corruption court. Amendments to the
court legislation, that was approved in the first reading, should “ensure that
the final version of that law is fully consistent with the program commitments
and recommendations of the Venice Commission of the Council of Europe,” Rice
said. The IMF has not approved any time schedule for a mission visit to Ukraine
to conclude the review, he said.

Meanwhile, Ukrainian power brokers are trying to offer
the IMF some compromise clauses on the selection of judges to the
anti-corruption court, the rbc.ua news site reported on May 16, citing MP
Leonid Yemets. Namely, the proposed clauses will grant the authority to the
High Qualifications Commission (consisting of 16 local judges) to overrule any
decision by the Public Council of International Experts to disqualify any
candidate for the anti-corruption court. IMF representatives have not “yet”
agreed to such clauses, Yemets said.

Alexander Paraschiy: The
stubbornness of Ukrainian power brokers is apparent in their insistence to
enable local judges to overrule the veto of international experts in appointing
anti-corruption court judges. And it’s equally apparent that the IMF won’t agree
to this proposal, primarily because a similar clause has already allowed for
the appointment of judges with questionable reputation (who had been vetoed by
international advisers) to become members of Ukraine’s Supreme Court. The World
Bank mentioned in a critical January letter to Ukraine’s
leadership that 60% of those candidates nominated to Ukraine’s Supreme Court
were found unfit by a Public Integrity Council consisting of international
advisors. Definitely, IFIs don’t want this shameful scene to repeat itself with
the anti-corruption court, which is confirmed by Rice’s comment yesterday
demanding “full consistency” of the legislation with the IMF’s vision.

At the same time, Ukraine needs the IMF to approve the
fourth review, which will open the window to receive up to USD 2 bln in
financing from the fund, as well as up to USD 1.4 bln in financing from the
World Bank and the EU this year. Without such financial support, Ukraine will
face its gross international reserves shrinking below the threshold of three
months of imports already in 2019, which may have negative consequences for
currency stability and debt sustainability. Moreover, it’s very likely that
international rating agencies will downgrade Ukraine’s credit ratings if there
is no progress with the IMF in the next few months. Taking into account all
this, we still believe Ukrainian decision-makers will find some way to adhere
to IMF recommendations on the anti-corruption court, even if barely so, and
will find common ground on the other outstanding issues in the coming month.

We believe next week’s decision of Ukraine’s
National Bank on the key policy rate will offer a valuable clue on Ukraine’s
likelihood of reaching agreement with the IMF. The National Bank, whose
officials take direct part in the IMF negotiations, knows much more than the
public does about the probability of a successful IMF deal. If the regulator’s
board meeting on May 24 decides to keep the rate unchanged, that will be a
positive signal.