IMF bets on third time lucky in UkraineComment on this story
London - The International Monetary Fund should be ready to hand Ukraine the first $3 billion of a new aid package next month, the Fund's top European official said on Monday, drawing a line under two failed programmes with the country in recent years.
In an interview with Reuters Insider television, Director of the IMF's European Department, Reza Moghadam, also called for the European Central Bank to step up its fight against low inflation and touched on the debate on debt relief for Greece.
The IMF agreed a $14-18 billion standby credit for Ukraine last week as part of a $27 billion international package aimed at getting the country's economy back on its feet.
The aid, which has clear political connotations as the West responds to Russia's land-grab of Crimea, remains a gamble for the Fund after two failed dealings with Kiev in the last decade.
“The Ukrainian economy has needed reform for many years,” Moghadam said.
“With the new government we have managed to reach an agreement on the type of policies they would implement so that we could support them with a financial programme.
“They seem to be committed, they seem to own this reform programme and in that sense I am optimistic.”
Conditions sought by the IMF include allowing Ukraine's currency, the hryvnia, to float more freely against the dollar, overhauling finances in the energy sector and following a more stringent fiscal policy.
Moghadam said the fund was looking for the first concrete steps from Kiev, but that the money should soon start flowing.
“We hope that the first disbursement could take place in April, by the end of April, and of course that is contingent on some actions being taken.”
“Given the large finance needs of the country in the next few months the first disbursement from the fund is likely to be larger than the other disbursements down the road.”
Ukraine's central bank said on Monday it had softened regulation of its foreign currency market imposed last month to inhibit devaluation and capital outflows.
Turning to the IMF's interests in the euro zone, Moghadam noted signs the tough medicine prescribed by the 'Troika' of international lenders - comprising the Fund, the European Commission and European Central bank - was starting to pay off.
Portugal might opt to exit its aid programme without any precautionary support in May, analysts say, while hopes are growing in Greece that its efforts may be rewarded with some kind of debt relief before the end of the summer.
“Portugal has made excellent progress. We have recently concluded the eleventh review of the programme, we hope to have
that considered by our board fairly soon,” he said.
“I think they are consulting (on exiting the programme without precautionary support). They are looking at the market situation; they are talking to their partners; they are talking to us, so I think a decision on their side will come soon.”
On Greece, the situation was more complex, considering the Troika only just managed to conclude its latest assessment of the country after months of delays.
“There are now some actions that have to be taken by Greece so we can recommend completion of the review... After that we will consider the debt issue and how to go forward after the summer.”
There also appeared to be a few creases that needed to be ironed out before Athens received its next tranche of aid.
“There is a discussion on Monday at the Eurogroup for the Europeans to discuss in terms of their contribution. And after that, the Fund, depending on the implementation of the actions... would consider its payment a little bit later.”
A niggling worry for countries including Greece was that ultra-low euro zone inflation - official figures showed it running at just 0.5 percent in March - would make cutting debts even tougher in the long run.
The IMF has long called for the ECB, which meets on Thursday, to be more aggressive with interest rate cuts and more unconventional policies.
With inflation now so far from its near 2 percent target, Moghadam said the central bank had plenty of incentive to act.
“There is an issue with what we call 'lowflation' and that makes life particularly complicated for countries with high debt.
“In our view there is room for both conventional and unconventional considerations (by the ECB),” he said, referring to traditional-style interest rate cuts and more unorthodox 'quantitative easing' tactics such as bond buying.
“I know they are considering all these options but whether they are warranted at this stage is another matter.” - Reuters