IMF MD upset by slow reform progress in Ukraine, outlines “roadmap”

The IMF’s managing director Christine Lagarde issued a statement with concerns about the slow progress of reform in Ukraine in the morning on Feb. 10. In particular, we expressed her concern about “slow progress in improving governance and fighting corruption”, she wrote. “It is vital that Ukraine’s leadership acts now to put the country back on a promising path of reform”. In a comment on Largade’s statement, Ukrainian Finance Minister Natalie Jaresko stressed that “it highlights that tranches are not provided without reform”, Interfax-Ukraine reported.  

Later that day, Lagarde had a phone conversation with President Petro Poroshenko. Lagarde said Poroshenko reassured her of his “unwavering commitment to … improving governance and fighting corruption.”  The two agreed on the principle of a roadmap to “keep Ukraine on a path toward robust and sustainable growth”, Lagarde wrote in her evening statement. Poroshenko also “highlighted the necessity of rearranging the Cabinet without early parliamentary elections, which would only deepen the political crisis and deteriorate the conditions for reforms”, his press service reported that evening.

According to the EFF program initiated by the IMF, Ukraine is going to receive up to USD 5.8 bln in IMF loans this year, as well as about USD 4.0 bln in loans from other western governments. The next IMF tranche, worth USD 1.7 bln, was scheduled for February. 

Weighing in on the recent events in Kyiv, U.S. Ambassador to Ukraine, Geoffrey Pyatt said “it is important that Ukrainian leaders … leave in the past their personal interests that have hampered the country’s progress over the past decades, and carry out vital reforms”, in a comment to Interfax-Ukraine.

Alexander Paraschiy: We interpret such statements of Western officials as calls to the Ukrainian parliament and president to agree to the demands of the minister-reformers to become more cooperative with them and not impede their reform efforts. According to Infrastructure Minister Andriy Pyvovarskiy, the Cabinet is preparing a set of demands for the parliamentary coalition which are essential for the government to stay and continue the reform process. The Cabinet is going to resign if parliament won’t satisfy such demands.

We expect the international pressure on parliament will intensify closer to February 16, when lawmakers are scheduled to decide on the future of the Cabinet. Under such pressure, power brokers will likely come to appreciate the possible consequences of a political crisis, which will be initiated as soon as the Cabinet resigns. That means an alternative scenario – the resignation of the Cabinet and a new political crisis – is becoming less likely.

We believe Lagarde and Poroshekno’s evening statements will result in more optimism in Ukraine’s fixed income market today.