IMF Must Consider Consequences for Poor and Social-Political Stability in Ukraine
April 30th, 2014
Today, the IMF’s Executive Board of Directors is scheduled to review a $16.8 billion loan for Ukraine, which was endorsed by IMF staff last week. The IMF-Ukraine deal will impact the future of both Ukraine and the IMF.
The IMF deal comes with several conditions, including a move to a flexible exchange rate. Ukraine, with IMF assistance, made this change in February 2014. This has led to a 29 percent drop in the value of the Ukrainian hryvnia – making it even more difficult for Ukraine to pay its debt. Unfortunately, the IMF deal does not include any debt relief or “haircuts” – requiring creditors to accept a loss. Instead, the debt burden will carried by Ukraine’s citizens, almost a third of whom already live in poverty, according to an April 2014 UN Report.
“IMF-Ukraine negotiations have neglected the consequences for the citizens of Ukraine, and in this vein have disregarded how loan conditions will impact political and social stability in Ukraine” said Jo Marie Griesgraber, the Executive Director at New Rules for Global Finance, a DC-based NGO that pushes for responsibility in global financial institutions. “This is short-sighted and we strongly urge the IMF Executive Board to take this into consideration.”
Energy Subsidy Reforms: The number of Ukrainians living in poverty will increase as Ukraine cuts public sector jobs and phases out its energy subsidies. The Washington Post has estimated that 80,000 police officers are expected to be laid off and that natural gas prices will increase 63 percent. The IMF has said that Ukraine intends to put in place measures to help the poor adjust to economic hardships.
Dr. Griesgraber stated, “The IMF should require that robust, well-functioning “adjustment measures” are in place before requiring a reduction in subsidies that hurt the poor.”
Anti-Corruption: The IMF has called on Ukraine to reduce corruption, but it is unknown if the Fund will require any anti-corruption measures. Given Ukraine’s high debt, the IMF could start by helping Ukraine track down funds stolen from public coffers.
Jack Blum, attorney and New Rules for Global Finance board member, suggested one approach: “I would have the loan conditioned on Ukraine using every tool in the box to recover the assets looted by pervious governments – all of them.”
Implications for IMF Reform: “Right now, Congress is paying close attention to everything that happens in Ukraine. Therefore, the IMF loan and its outcomes are going to influence how Members of Congress view the IMF. If the IMF loan to Ukraine does not result in social and political stability, many members of Congress will consider IMF assistance a failure and continue to block IMF reform legislation” warned Rev. Dr. Séamus Finn, OMI, Chair of New Rules of Global Finance. “The 24 members of the IMF Executive Board, especially those interested in moving the 2010 reforms forward, should be mindful of this.”
Notes to Editor: New Rules for Global Finance is a 501(3)c non-profit organization that promotes reforms in the rules and institutions that govern international finance; in order to support just, inclusive and sustainable economic development.
For more information, please visit www.new-rules.org
Nathan Coplin email@example.com 810-348-3165
Jo Marie Griesgraber firstname.lastname@example.org 202-277-9390