Ukraine can do without financial help from the IMF
Macroeconomic indicators demonstrate a high level of risk for Ukraine’s economic To maintain its macroeconomic
situation. To maintain the country’s macroeconomic stability, the government needs stability, Ukraine can ask for the
funds to swing the balance of payments out of deficit, keep the hryvnia’s value IMF’s support (with the proviso
within a predictable exchange rate, and gap the budget deficit. In this situation, the that it complies with the IMF’s
government can apply for financial help from the International Monetary Fund. terms). On the other hand, the
However, the Stand-By Arrangement, which was achieved between Ukraine and the possibility remains that Ukraine
IMF in 2010, has been put on hold because the country has failed to perform its could do well on its own
obligations.
On the other hand, many economists criticize the IMF’s mission claiming that its
programs do not help the loaners. For example, the Fund’s financing not only failed
to solve the economic problems in Latin America (Mexico and Venezuela) and Asia
(Thailand and Indonesia), it aggravated the economic situation in these countries. By
way of contrast, many countries (such as Malaysia) succeeded once they rejected the
foreign aid.
Can Ukraine do without financial help from the IMF? What risks will be introduced
along with the new loans?
Arguments FOR the motion
Complying with the preconditions of the IMF’s aid will slow down the country’s Meeting the IMF’s requirements
economic growth. The IMF demands that its borrowers fulfill a number of will limit the country’s economic
requirements, primarily aimed at curtailing their budget deficit. In Ukraine’s case, growth
this will mean an increase in household tariffs for gas and heat supply up to their
market price, limited growth of state wages, and frozen social payments. Another
requirement, which entails cutting down the financing of budget-sponsored
programs, deprives the government of an opportunity to support the economy during
the crisis by subsidizing the domestic market. Put together, these factors will limit
local demand and eventually slow GDP growth for many years.
A refusal of the IMF’s aid will compel the government to conduct in-depth reforms, A rejection of the IMF’s help will
which would otherwise be put on hold once the tranche is granted. The IMF’s loans force Ukraine to implement the
help governments combat crises which are often triggered by the inefficiency of their reforms
economies. If a government wants to stabilize the situation, serious reforms are
inevitable. However, loans help these ineffective systems stay afloat, at the same
time increasing the country’s foreign debt and eliminating the urgency to pursue
reforms. Herewith the country may end up in a painful debt crisis, as has happened in
several EU countries.
Foundation for Effective Governance
8 Illinska Str, 8th Entrance, 5th Floor, Kyiv, 04070, Ukraine
tel: +380 44 501 41 00, fax: + 380 44 501 41 05, feg@feg.org.ua
www.feg.org.ua, www.debaty.org

Arguments AGAINST the motion
The IMF’s financial aid will secure the country’s macroeconomic stability. The The IMF’s money will guarantee
reduction of Ukrainian exports and the need to buy expensive Russian gas, together
the country’s macroeconomic
with the lack of foreign investment and obligations to serve a considerable foreign stability
debt (only this year the country has to pay back about seven billion US dollars) has
thrown the balance of payments out of equilibrium. Coupled with a popular
expectation of the hryvnia’s devaluation, this factor will seriously endanger the
stability of the hryvnia. The IMF’s tranche will provide the money that will help the
Ukrainian government make all the necessary payments, and in doing so, maintain
the country’s economic stability.
The resumption of the IMF’s loan program and the issue of a new tranche will fuel A resumption of the IMF’s aid
the confidence of foreign investors in Ukraine. By setting certain requirements for its will increase the trust of investors
loaners, the IMF guarantees the payback of its loans. At the same time, it assures the
safety of other investors’ money. The working credit program of the IMF will send a
positive signal to international investors that economic risks have subsided and in
turn boost the influx of foreign investments in Ukraine.
The problem of the necessity and expediency of the IMF’s financial aid will be discussed at the public debate to
be held by the Foundation for Effective Governance in partnership with Britain-based Intelligence Squared on
September 25, 2012.
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Statistics
Fig. 1 State debt of Ukraine Fig. 2 Future repayments of external state debt of Ukraine
Source: Ministry of Finance of Ukraine Source: Ministry of Finance of Ukraine
Fig. 3 Ukraine’s IMF debt Fig. 4 Balance of payments of Ukraine
Source: Ministry of Finance of Ukraine Source: Ministry of Finance of Ukraine
Foundation for Effective Governance
8 Illinska Str, 8th Entrance, 5th Floor, Kyiv, 04070, Ukraine
tel: +380 44 501 41 00, fax: + 380 44 501 41 05, feg@feg.org.ua
www.feg.org.ua, www.debaty.org