Without IMF Loan, Greek-Style Debt Crisis May Face Ukraine - Minister

KIEV, Ukraine -- The Ukrainian economy may plunge to a "pre-default" level and experience problems similar to those facing Greece if Ukraine's cooperation with the International Monetary Fund (IMF) fails, Deputy Prime Minister Serhiy Tihipko has said.

Deputy Prime Minister Serhiy Tihipko.

"The IMF's exit [from Ukraine] will immediately lower the country's rates, and the cost of our foreign debt, which has significantly expanded over the past three years... will immediately increase," Tihipko, who is also serving as minister for social policies, said in an interview with Ukraine's Inter TV channel.

"Moreover, I can tell you that after we take another one or two loans, we may find ourselves in a pre-default situation," he added. "Then, we will face a situation like the one in Greece."

In July 2010, the IMF approved a $15.15-billion standby loan for Ukraine "in support of the authorities' economic adjustment and reform program" following a request from Kiev.

Ukraine has received two tranches with a total worth of $3.4 billion, but the fund has been reluctant to allocate new tranches, citing insufficient efforts by the Ukrainian government to cut budget deficit and its unwillingness to increase gas prices and raise the retirement age.

Ukraine's inflation rate rose to 9.4 percent from 7.7 percent in April, its highest level in six months, as prices for food, alcohol and utilities increased. According to expert estimates, the figure may rise further to 12-13 percent by mid-July.

The Ukrainian government has not been spending the money received from the IMF, Tihipko said. "All the money from the International Monetary Fund goes to currency reserves, it is being saved there... we don't take a hryvnia from those loans," he added.

On Thursday, local news agency Unian published a copy of letter sent by Sergei Arbuzov, the head of Ukraine's National Bank, to Prime Minister Nikolai Azarov.

In the letter, Arbuzov blames the government for undermining cooperation with the IMF and raises concerns about growing inflation in the country.

Tihipko confirmed that such a letter had been received by the government. "There are certain risks, which Mr. Arbuzov stressed, and we understand this very well," he said.

Source: RIA Novosti

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