Azarov Dismisses Talk Of Ukraine Default

KIEV, Ukraine -- Prime Minister Mykola Azarov on Thursday rejected speculation Ukraine may be heading towards default and suggested the government will continue a budget policy that challenges recommendations of the International Monetary Fund. The IMF, which suspended $15.2 billion loan to Ukraine two years ago, had demanded the government hike domestic natural gas prices and narrow its budget deficit to 1.7%-2% of GDP. But Azarov said the best the government could do was to cut the deficit to below 3% of the GDP in 2013, and said further cuts may jeopardize economic growth. “We have our own view of the situation,” Azarov said in an interview with Channel 5. “We are doing just fine without the IMF loan.” An IMF team is currently in Ukraine for talks with the government to assess its economic and fiscal policies and to provide recommendations on how to approve the situation and to avoid financial aggravation. “If recommendations support economic growth, we are in their favor,” Azarov said. “But if they work for economic contraction and for making our people poorer, we are against them.” The comments come as Azarov has earlier this month rejected another important demand from the IMF on hiking its domestic gas prices, making it less likely for the IMF to unlock the loan. The failure to win resumption of the loan was recently cited by former President Viktor Yushchenko as a reason that may lead the government to default on massive debt payments early next year. These speculations and fears the government may be resorting to money printing to cover its budget deficit has put downward pressure on the hryvnia. It fell to 30-month low against the dollar on Wednesday and continued its slide on Thursday. The hryvnia closed at 8.12 to the U.S. dollar in trading between commercial banks on Thursday, compared with 8.11/dollar on Tuesday, dealers said. The hryvnia was hit by reports the budget deficit had risen sharply in July, perhaps explaining the government’s recent borrowing frenzy when it had issued up to $3 billion in two issues of Eurobonds, borrowing money at high interest rates. The budget deficit expanded to 16.9 billion hryvnias ($2.1 billion) in January-July, up from 10.2 billion hryvnias ($1.3 billion) in January-June, according to figures released by the Finance Ministry. But Azarov denied the speculations the government may be heading towards default, and said it had always maintained the debt payment schedule. “They predicted defaults for us ever since we have started to work in the government,” Azarov said. “Did we run out of forex reserves? Did we delay at least one debt payment? We have been making timely debt payments.” Yushchenko said the National Bank of Ukraine’s forex reserves have dwindled to a level that may not cover the country’s total debt, which includes government and corporate debts.