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

18 May 2018

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.