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8:37 AM Thursday, October 19, 2017
Finance
Visit of IMF’s Lipton Highlights Unfinished Business for Ukraine
image/svg+xml Kyiv Lutsk Rivne Zhytomyr Lviv Ternopil Khmelnytskyi Uzhgorod Chernivtsi Vinnytsia Chernigiv Sumy Kharkiv Poltava Cherkasy Kirovohrad Lugansk Dnipropetrovsk Donetsk Zaporizhzhia Mykolaiv Odesa Kherson Simferopol Sevastopol Ivano- Frankivsk

Sums things up quite well....

I would add in that the IMF likely will also need to review budget plans for 2018, due for presentation over the next week or so, and currently under preparation.

With no IMF mission date set, it will be hard to get the next tranche approved by the October target. The near term objective of the Ministry of Finance will be getting the Eurobond issue/exchange done, which will further bolster the administration's cash position, and easy back on the urgency of getting the IMF deal signed off to release cash. Given the political context, getting IMF money before year end will be a result.

President Poroshenko meets Wednesday with David Lipton and the IMF team (UNIAN/Nikolay Lazarenko)

The government likely thinks: the budget, pension reform, possibly an IMF friendly NBU governor, and a bit of privatization (Centrenergo) - with some promises of "will do" something in 2018 on land reform, should be enough for the IMF to give way on completing prior actions (from April) on energy price liberalization, and also agreeing to stall on the anti-corruption agenda.

For me, the latter should be the number one priority for all. It is central to getting growth/investment going. But given the government now is not likely to need IMF cash, and Poroshenko seems increasingly focused on elections, it likely will fall by the wayside, again.

I also sense the issue of the NBU governorship is now being embroiled in the debate about revamping the ruling coalition. There is talk of Yatseniuk's People's Party more formally joining Poroshenko's BPP.

There will be some shuffling of the chairs on the deck, with some deployment of ministerial portfolios. The NBU post might be a "grace and favor" allocation. The prospects of the market's favorite candidate, Lavrenchuk, being appointed are fading. I hope that he has not given his notice yet at Aval.

Interesting now that we have the Poroshenko-Yatseniuk-Avakov-Akhmetov axis being formed against the Saakashvili-Tymoshenko-Sadoviy emerging alliance, possibly with Kolomoisky as his battle with Poroshenko steps up.

The West has interesting and difficult choices as to who to support, among a pretty checkered field.


Timothy Ash is senior sovereign strategist for emerging markets at BlueBay Asset Management in London.


Visit of IMF’s Lipton Highlights Unfinished Business for Ukraine

By Daryna Krasnolutska
(Bloomberg) -- This week’s visit of the International
Monetary Fund’s second-in-command has shone the spotlight on how
much Ukraine still has to do under its $17.5 billion bailout.
First Deputy Managing Director David Lipton ended a two-day
trip to Kiev Thursday after meeting with central bank and top
government officials to discuss progress on meeting the
Washington-based lender’s terms for the next aid disbursement.
Ukraine must take further action to switch to rapid growth from
economic stabilization, Lipton told Prime Minister Volodymyr
Hroisman a day earlier.

Repeated delays to the IMF program have thrown into
question the former Soviet republic’s commitment, with old-guard
politicians often unwilling to alter a system from which they
benefit. The last $1 billion loan tranche was transferred in
April, four months late, while the next had been due in the
summer. The government is selling Eurobonds for the first time
since a 2015 debt restructuring. While endorsed by the IMF,
there’s concern the move may weaken resolve to implement the
lender’s policies before elections in 2019.

“There’s a risk reforms will stall in the end,” said Lutz
Roehmeyer, who helps oversee 12 billion euros ($14 billion) at
Landesbank Berlin Investment GmbH. “If you look into the history
of IMF programs, they start with enthusiasm and once reform
fatigue starts we talk first about delays, then stop, then the
end of the program.”

Roehmeyer sees cooperation with the IMF continuing for now
and the delayed fifth tranche arriving eventually. While
Landesbank Berlin Investment holds existing Ukrainian debt, he
said it won’t buy the new bonds “because they’re too long for
our taste.”

Parliament reconvened from summer recess this month and
will vote on legislation to get the IMF program back on track.

To receive its next chunk of aid, the to-do list includes:
* Pension reform. Lawmakers have passed in the first reading an
IMF-backed retirement revamp under which citizens must
contribute to the state fund for 25 years rather than 15 at
present to be eligible for benefits. While the retirement age
wouldn’t rise, the government predicts the $5.6 billion pension
deficit would be eliminated by 202
* Anti-corruption court. Needed to complement anti-graft
investigators and prosecutors, the creation of the court has
been repeatedly delayed. European Commission President Jean-
Claude Juncker indicated in July that the request to establish
it may be softened. Corruption-battling activists have recently
come under attack
* Energy prices. The IMF deal envisages bringing household
natural gas prices to the same level as Ukraine pays to import
the fuel. Already behind schedule, completing this reform now
could prove unpopular as winter approaches
* Privatization. Legislation is needed to speed up state assets
sales and improve transparency. Initially targeting 17 billion
hryvnia a year ($650 million) in privatization revenue, Ukraine
has raised just 3.6 billion hryvnia since 2015

There are other issues. President Petro Poroshenko must
propose a replacement for Valeriya Gontareva, who quit as
central bank governor in May. While people familiar with the
matter said that month that he’d put forward Raiffeisen Bank
International AG’s chief executive officer, Volodymyr
Lavrenchuk, TV 5 reported in August that there are now two
candidates
Other reforms such as one regarding the sale of farmland
will probably be pushed back further, though in the meantime the
IMF will keep an eye on the 2018 budget. It’s unclear when a
technical mission from the lender will take a more detailed look
at Ukraine’s reform efforts.

--With assistance from Volodymyr Verbyany.



To contact the reporter on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

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