beyondbrics

It’s looking less and less likely that Ukraine, its fragile economy bracing for a eurozone-driven slowdown, will get a boost of confidence and cash any time soon from the International Monetary Fund.

A senior US official hinted during a recent visit to Kiev that fresh bailouts from the IMF, which froze a $15.6bn loan programme last year due to lacklustre reforms, will also require greater commitment to democracy.

It was a clear warning to President Viktor Yanukovich (pictured), who is under fire internationally for the jailing of opposition leader Yulia Tymoshenko and for a broader rollback on democratic freedoms.

In a weekend interview on Ukraine’s TVi television channel, Philip H Gordon, US assistant secretary of state, said:

“Typically the IMF will focus in on more narrow criteria that are solely in the economic area. Those conditions are hard enough to meet. But I do think that in reality if a country is seen to be violating its democratic obligations, it becomes more difficult for international institutions to support them, especially in this climate where there’s a lot of pressure on funding and a lot of countries that need support.”

The warning comes as the IMF has taken a harder stance in making loans dependent on concrete delivery of reforms. As Dragon Capital, a Kiev investment bank, wrote to investors on Tuesday, “Ukraine’s authorities definitely cannot count on any leniency from the Fund.”

Yanukovich has shown no signs in recent months of caving in to US and EU pressure to release Tymoshenko or raise natural gas prices for households to market levels. The latter, a key IMF condition, would be unpopular ahead of an October parliamentary election.

Tymoshenko, 51, was sentenced to seven years in jail last year on what many see as trumped up charges. Her supporters claim her health has deteriorated in prison.

A delegation of German and Canadian doctors was due to check her health on Tuesday but the visit was cancelled after Tymoshenko refused to allow Ukrainian government doctors, whom she claims not to trust, to take part as supervisors.

Concerns are also growing about the health of Ukraine’s economy. GDP grew by 5 per cent last year as the country continued its crawl out of a 15 per cent contraction suffered during the 2009 global slowdown.

With the economy still vulnerable to external shocks, officials are keen to build up a financial cushion. As the chances of an IMF package have receded, Kiev is mulling the option of a eurobond issue, starting with a $1.5bn or larger placement in March. But borrowing on jittery international markets could prove difficult and expensive for Kiev, particularly with the IMF programme off track.

ICU, a Kiev investment bank, wrote to clients on Tuesday:

Private investors may find [the bond] beyond their risk appetite, when the IMF raises a red flag by overemphasising a string of yet unrealised commitments from the Ukraine side.

Related reading:
Ukraine: on the brink again? beyondbrics
EU warns Ukraine over ‘political justice’, FT
Ukraine & the IMF: nervous times, beyondbrics