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Ukraine: IMF Approves Loan Installment

Kyiv, 30 January 1998 (RFE/RL) -- Later than first hoped, the International Monetary Fund's (IMF) Board of Executive Directors has released to Ukraine the latest installment on its $540-million standby loan. Ukraine's government hopes the action will reinvigorate investor interest in a sagging treasury bill market, and help slow a run on foreign currency reserves, as the National Bank of Ukraine (NBU) defends the currency, the hryvnia.

The IMF approved the $47-million installment Wednesday.

And, while the IMF said it hopes the money would help the country's financial markets, most market analysts in Kyiv tell RFE/RL they remain skeptical.

"I don't want to be negative," said Alfa Capital Kyiv Head of Research Paul Gregory. "But $49 million works out to one dollar for every Ukrainian. That's not very much in terms of overall economic effect."

The IMF delayed its approval of the December installment past the end of 1997, because of Kyiv's inability to meet the key fiscal target of approving a national budget with minimal deficit spending. President Kuchma signed a national budget into law last week, projecting a 0.5 percent increase of the gross domestic product (GDP), a 12 percent annual inflation rate, and a resulting budget deficit of three percent of overall government spending.

Reaction was not universally pessimistic.

"Every little bit helps," said Woodcommerz Senior Analyst Patricia Bartholomew. "The Ukrainian government can certainly use it."

But the experts say, fiscally speaking, the IMF money only represents one side of the equation.

The government's cash flow is still negative. Very negative, in fact. This week alone Ukraine's Ministry of Finance paid off over $100 million in matured treasury bills. And, defending the hryvnia exchange-rate corridor by the National Bank of Ukraine cost Kyiv another $50 million in foreign currency reserves, according to an Alfa Capital estimate.

Despite these developments, hopes are high in Kyiv government circles that, now that a viable budget is in place, the IMF loans will continue to flow.

The government says IMF official Mohammad Shadman-Valvi will be in Ukraine next week (Feb. 5) to review progress toward further installments.

But, "limiting government spending may well be more easily promised than achieved," said a Western investment banker.

And, he and others say Ukraine must pursue an Extended Fund Facility with the IMF. Ukrainian Deputy Prime Minister for Economy Serhiy Tyhypko said in Washington last week that he hopes Kyiv would be ready to begin discussing a long-term loan by April. The IMF last year declined to go forward with a three-year extended loan of up to $3 billion, urging Ukraine to go with the smaller, regular stand-by loan until the government's reform program is further along.

One analyst told RFE/RL there is one main underlying factor.

By April, parliamentary elections will have been completed (they are scheduled for March). And, the government is counting on projecting a good image overseas of fostering democratic institutions. The analyst says the government believes this will translate into additional support from the West and IMF.