WASHINGTON: The International Monetary Fund is treading on risky ground in rushing to the aid of Ukraine, given the country’s instability and poor track record with the international lender.
The IMF said on Thursday it would lend Ukraine $14-18bn over two years to help it rebuild its finances, which have been run down by poor governance, leaving the country on the edge of default.
It will be one of the biggest assistance programmes the IMF has ever embarked on, although still far below the $30bn it lent to Ireland and $64bn for Greece.
But Ukraine’s crisis is different from the financial storm that rattled the peripheral countries of the eurozone. The government in Kiev has been in power just since February, following the uprising against previous president Viktor Yanukovich.
It has also just suffered the annexation of the Crimea region by Russia, and has Russian troops sitting menacingly on its eastern border.
“The IMF went through a lot of tensions during the eurozone crisis to square all the different positions within its membership. But the situation in Ukraine poses much bigger risks,” Domenico Lombardi, a former Fund administrator, said.
In order to satisfy IMF conditions that come with the aid, the government of Ukraine will have to test its popularity with austerity measures that could total 2.5 percent of the country’s GDP.
The Kiev government has said it is willing to make the sacrifices, announcing a 50 percent increase in natural gas prices, a longstanding demand of the IMF.
But how long their commitment to the IMF reforms last is another question. Will it survive an escalation of tensions with Moscow, or the presidential elections shaping up in May?
“It’s certainly risky. That’s not because there’s political instability in a country that the IMF shouldn’t get involved. It’s quite the opposite,” said Ted Truman, a former US Treasury official.
The IMF is often called on to rescue countries where political and economic crises can come together, as with Thailand in the late 1990s. “This is what the IMF is here for,” said Jacob Kierkegaard, a researcher at the Peterson Institute think tank.
AFP
