Ukraine, IMF pledge to continue

Deputy Prime Minister Sergiy Tigipko said Ukraine would continue negotiations with the International Monetary Fund on restarting the country’s USD 15.5 bln standby loan program in 2-3 weeks. The statement followed a visit by a Ukrainian delegation headed by new Finance Minister Valeriy Khoroshkovsky to Washington DC to meet with IMF officials this week. In separate news, Ukrainian Prime Minister Mykola Azarov met with IMF Managing Director Christine Lagarde yesterday in Zurich, with the leaders pledging the continue an active dialogue on the technical team level until a breakthrough is reached.

Vitaliy Vavryshchuk: As the Ukrainian government remains reluctant to implement key IMF-required reforms, the lack of a breakthrough during this week’s meetings was predictable. The issue of raising household gas tariffs remains the key stumbling block, with the Ukrainian government so far unprepared to give in to the demand. We see little chances of Ukraine resuming cooperation with the IMF in the coming months but think that if Ukraine’s external accounts deteriorate and hryvnya pressure starts to mount, the government might be forced to take socially unpopular actions to secure new loan tranches. A potential gas deal with Russia would also help break the impasse in IMF-Ukraine negotiations as an import gas price discount for Ukraine might alleviate the need for a sizable tariff increase for households.