IMF Team Will Visit Ukraine Next Week For 2010 Budget Talks

KIEV, Ukraine -- The International Monetary Fund said a team will visit Ukraine next week to discuss the 2010 budget as the country’s new government seeks to restore lending, which has been frozen for more than four months.

“We had fruitful discussions on the government’s economic policy priorities for 2010, which includes re-engagement with the fund,” Max Alier, resident representative of the IMF in Kiev, said in an e-mailed statement today after meeting Deputy Prime Minister Serhiy Tigipko.

“The fund stands ready to support Ukraine in its endeavor to return to a sustainable growth path, and that I will relay the request for a mission to our headquarters, and consult on next steps.”

Ukraine’s $16.4 billion loan has been suspended since November after lawmakers were unable to commit to budget cuts to comply with the terms of the bailout. The parliamentary majority supporting Prime Minister Mykola Azarov formed on March 11, after legislative changes enabled the move, is stable and will increase, Tigipko said today.

“We need to resume cooperation with” the bailout donors “as soon as possible,” Tigipko told reporters in Kiev. “We need the cooperation as it will give a very positive signal to investors and we need investments as central bank reserves are melting and we have to increase them.” The government may also seek bilateral loans if necessary, he said.

Ukraine needs to narrow its budget deficit to 4 percent of economic output this year, compared with last year’s 11.5 percent of GDP shortfall to fulfill IMF conditions. The government will be committed to spending cuts, Tigipko said.

The prospect of a resumption of the IMF program has boosted the country’s markets. The credit default swap spread on five- year debt yesterday fell to 724 basis points, the lowest level since September 2008. The benchmark PFTS Index jumped 2.4 percent today to 819.36, its highest level since June 2008. The Ukrainian Equities Index, which is poised to take over the PFTS as a more liquid benchmark, rose 4.2 percent.

Standard & Poor’s yesterday raised Ukraine’s foreign and local currency ratings one level to B- and B, respectively. Both grades carry a positive outlook, S&P said.

The “formation of a new governing coalition and Cabinet in Ukraine has paved the way for better policy coordination and a renewal of relations with the IMF,” S&P credit analyst Frank Gill said in the statement.

Source: BusinessWeek