Saturday 5 November 2011

Ukraine Fails To Clinch IMF Deal As Mission Leaves

KIEV, Ukraine -- Ukraine's central bank indicated on Friday that a visiting International Monetary Fund mission was leaving without a deal to re-start lending, saying only that it hoped an agreement would be reached soon.
"The IMF mission is completing its work in Ukraine," it said in a statement.

"The central bank hopes that the International Monetary Fund and the government will resolve all issues ... in the nearest future which will allow (Ukraine) to receive the next tranche which is crucial for the advancement of reforms in Ukraine."

The IMF halted payouts under its $15 billion programme for Ukraine at the beginning of this year after the government delayed unpopular reforms such as raising the gas price for households.

The government, wary of its waning popularity in the run-up to the October 2012 parliamentary election, point-blank refused to raise prices, a source close to the talks told Reuters this week.

However, faced with a looming balance of payments crisis and little investor appetite for its debt, Kiev will need to start getting IMF cash again soon unless the global economy quickly improves or Russia agrees to supply its import-reliant neighbour with cheaper gas.

It hopes to negotiate a discount from monopoly gas supplier Russia that will help it balance the books.

But talks with Moscow, which have lasted for over a year, have so far failed to yield tangible results.

First Deputy Prime Minister Andriy Klyuev said separately on Friday the government expected to conclude the negotiations this week, securing a significantly lower gas price.

Analysts say the absence of IMF financing, which was supposed to boost central bank reserves by about $1.5 billion per quarter, is likely to increase the depreciation pressure on the hryvnia .

The central bank spent over $2 billion in September to keep the currency pegged at about 8.0 hryvnias per dollar while the euro and the rouble devalued.

The IMF deadlock also highlights Ukraine's growing dependence on Russia at the time when its ties with the European Union are strained over the jailing of former prime minister Yulia Tymoshenko.

Analysts say a new gas deal with Russia would likely involve some concessions by Kiev, such as allowing Gazprom to buy into Ukrainian gas pipelines which deliver Russian gas to Europe.

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