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By John Helmer, Moscow

The International Monetary Fund (IMF) decided on Thursday, July 17, that the Ukrainian government should not receive a new transfer of $1.4 billion, as previously scheduled on July 25. Instead, the IMF agreed with officials in the government of President Petro Poroshenko and Prime Minister Arseny Yatseniuk that they should spend several more weeks improving on their accounting of how they have spent the first $3.2 billion of the IMF’s Stand-By Arrangement for Ukraine, paid out on May 6. Measures were required, the IMF warned Poroshenko and Yatseniuk, to halt the haemorrhaging of IMF cash out of the Ukrainian budget — and of capital from Ukrainian banks and corporations out of the country.

According to Reuters, “IMF sees decision on $1.4 billion tranche to Ukraine in weeks.” Nikolay Gueorguiev (lead image), head of the IMF’s Ukraine team, told Reuters his team “has reached an understanding with the Ukrainian authorities on the policies necessary for the completion of the first review under the standby agreement… We expect this process to be completed within [a] few weeks.”

yatseniukThis wasn’t what Yatseniuk (right) meant when he claimed on July 9, also according to Reuters, that he was expecting the IMF payday on July 25 “because it was fulfilling all the criteria.” Gueorguiev also revealed, according to Reuters, that the government’s violation of the IMF’s spending and accounting controls was justified because of “the large costs Ukraine is incurring while fighting the pro-Russian separatist rebellion in the east of the country.”

Gueorguiev’s reference to “weeks” of delay meant the IMF was unready to accept that the vanishing first tranche of $3.2 billion has been spent on war in the east. “Weeks”, in Gueorguiev’s statement to Reuters, meant that without Ukrainian accounting compliance, the risk and suspicion remain that Ukrainian insiders have been trousering the IMF money and sending it offshore.

Reuters bylined Gueorguiev’s disclosures in Kiev, and gave the initial time of publication as 0542 on Friday morning, Washington time.

Gueorguiev appears to have been speaking to Reuters before he took his aeroplane back to the office in Washington. By the time he arrived, Bloomberg’s Kiev bureau was claiming that “IMF Says Ukraine Qualifies for Second Tranche of Loan”. Citing an emailed statement from Gueorguiev, Bloomberg reported there had been some delay on the part of the Ukrainian government, but there would be no delay in the IMF payment. “All structural benchmarks for the first review have been met as well, although some of them with a delay,” Gueorguiev is reported as saying. “This is a notable achievement as the intensification of the conflict in the east means that the program has been implemented in an environment that is considerably more difficult than anticipated when it was launched.”

The July 25 deadline, and the IMF’s conditions required for the Kiev government to qualify on time, can be found here.


On June 4 Gueorguiev announced the IMF would make public the Fund’s control standards and auditing requirements. Since then the IMF, the Ukrainian Finance Ministry and National Bank of Ukraine have not published these details.

In Washington, late in the afternoon of last Friday – early Saturday morning, Kiev time – the Wall Street Journal reported “the International Monetary Fund on Friday gave the green light to the next tranche of bailout funding for Ukraine, but warned that fighting in eastern Ukraine risked capsizing the emergency financing program and that additional cash may be required.”

An official statement issued by the IMF in Washington during Friday afternoon was headlined: “IMF Announces Staff Level Agreement with Ukraine on First Review under the Stand-By Arrangement”. But the text which follows says nothing about releasing the new cash. Instead, the IMF reveals that the Ukrainian government was spending more budget money than it had earlier agreed with the IMF; collecting much less revenue in tax and debt arrears from the country’s private corporations; allowing concealed subsidies for gas which have been prohibited; and letting capital move offshore at a growing pace.

As a result, the IMF acknowledged its earlier forecasts were mistaken. “GDP is now expected to contract by 6.5 percent this year, compared to 5 percent when the program was adopted…the combined fiscal and quasi fiscal deficits are projected to amount to 10.1 and 5.8 percent of GDP in 2014 and 2015, respectively —compared to previous targets of 8.5 and 6.1 percent…gross reserves will be only some US$3.4 billion lower than programmed by end-2015.” The blowout of Ukrainian government spending of IMF money was causing “external debt to GDP [to] peak 7 percentage points higher than programmed at end-2015.”

The bad news could get much worse, the IMF conceded in its statement. “The program hinges crucially on the assumption that the conflict will begin to subside in the coming months.” But if the war in eastern Ukraine grew worse, the IMF would have to consider upping the $17 billion total of its payments: “a significant prolongation of the crisis would seriously strain their ability to do so without a substantial increase in external support on adequate terms.”

And there’s the rub: what have Gueorguiev, senior management at the IMF, and the governments which sit on the IMF board decided about the terms and conditions the Poroshenko-Yatseniuk government in Kiev should meet?

Officially, the IMF release on Friday afternoon said these terms are still being negotiated, and there will be no new cash until there is new agreement. “The authorities have committed to take a number of policy actions prior to the completion of the review. As is usual practice, the understandings reached with the authorities are subject to approval by IMF management while the completion of the review is subject to approval by the Executive Board. The completion of the review would enable the disbursement of SDR 914.67 million (about US$1.4 billion).”

Gueorguiev was asked to explain how it happened that he had told Reuters the IMF was “weeks” away from deciding on the release of the second tranche, but that, according to the Bloomberg report the “weeks away” decision had been taken already. What had happened last Friday, he was asked, for IMF senior management to change the timing he had announced.

Gueorguiev responded with an automatic email: “I am out of office until July 18. Time difference, work load, or connection problems may delay my response.” Four days later Gueorguiev was still delaying his reply.

“Poor Gueorguiev spent three weeks toiling day and night in Kiev”, commented a European analyst of the IMF’s Ukraine programme. “He was probably right talking about a few more weeks to see more clearly whether the Ukrainians can comply with the tranche release conditionality. But in the meantime somebody is walking over his tired body, and is pushing for the tranche release at any price, including the waiver of conditions. Is it cynical to think the downing of the Malaysian Airlines Boeing has accelerated the IMF’s decision-making? Placing false news in the press is probably one of the pressure methods. This could mean the pressure is coming from outside the IMF.”

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