IMF Set to Reward Ukraine for Reforms

KIEV -- The IMF was expected to release a $365 million loan to Ukraine Wednesday night, on the eve of a crucial meeting on aid between President Leonid Kuchma, representatives of the G-7 and Western financiers.


The release by the International Monetary Fund of the first half of a "Systemic Transition Facility" for Kiev would come as an important signal of support for Kuchma's reform plans, which for the first time have given a real indication that Ukraine is ready to restructure its economy.


The $365 million is aimed at helping Ukraine stabilize its economy in the difficult period of transition from state control to a market. But the IMF's timing would also be welcome to Kuchma as he travels to the Canadian city of Winnipeg to meet with potential Western donors.


A Canadian diplomat in Kiev, Roman Lishchynsky, said earlier this week that "the most important thing Kuchma can do in Canada is to convince potential investors and G-7 donors that Ukraine will actually implement the reforms it has pledged to implement."


Kuchma has fought a difficult battle with Ukraine's Communist-dominated parliament and government to win support for the radical program of economic reform that he drafted himself. Earlier this month he told deputies in the parliament, or Rada, that if they failed to support reform, "Ukraine would be pushed to the margins of the world economy."


This week the government implemented decrees on key points of the program, marking a breakthrough in the stalemate over reform that has stymied the Ukraine's economic development since the country attained independence nearly three years ago. It unified the rate of exchange for its currency, eliminating the government's fixed rate for state transactions in favor of a market-determined rate for all currency exchanges. It also liberalized prices for energy resources, including coal, oil and gas. Plans are to increase the price of bread as well -- as much as 15-fold.


These measures should help support Kuchma's argument to delegates at the Winnipeg meeting that Ukraine, until now one of the slowest of the former Soviet republics to reform, is at last moving toward market economics.


In Winnipeg, Kuchma will be seeking funds to help finance government debts this quarter of around $600 million. The Group of Seven leading industrialized nations pledged a total of $4 billion in aid to Ukraine during its Naples summit in July, but little of that money has so far been released.


"The IMF support represents a significant down-payment on the $4 billion available if reform in Ukraine continues," said United States Undersecretary of the Treasury Lawrence Summers, Reuters reported. Nevertheless officials traveling with Kuchma indicated that would not be enough.


"We need $900 million in the fourth quarter if we are to carry out the economic reforms set out in the economic stabilization program on which we agreed with the IMF," said Economy Minister Roman Shpek.


Inside Ukraine, however, trade union leaders are already complaining that the country's workers will bear the cost of implementing the president's economic program. A statement issued yesterday by the coal miners' union said that miners "will not exclude the possibility of strikes as a tool for workers to fight for their rights and interests."


This is exactly the sort of thing that Kuchma and his advisers say they are keen to avoid. They say they hope that funds from the West will ensure that Ukraine's transition to a market economy occurs with a minimum of political instability.