IMF loan must wait until after the May election
Letter to the Editor

Article Highlights

  • Lachman: it's fanciful to think the IMF can save Ukraine's economy now

    Tweet This

  • Before a credible gov is in place in Ukraine, IMF can't do much to help

    Tweet This

Sir, It is not clear that Anders Aslund does us a service by minimising the magnitude of economic adjustment that Ukraine needs and by overstating what the IMF can reasonably be expected to do to support that country (“Ukraine can now fix its economy – if it moves fast”, February 26).

According to Dr Aslund, Ukraine’s economy could be turned around with a radical 12-month IMF-supported adjustment programme, with an IMF loan disbursement as early as March. In his view, a radical reform programme should be easier to undertake in Ukraine than in many countries that have faced similar crises since in Ukraine financial stabilisation primarily means an anti-corruption programme.

While Dr Aslund is correct to emphasise the need for improved governance, he glosses over the fact that the corruption issue has been a longstanding IMF concern that predates the Yanukovich government. This suggests that resolving this issue will be far from easy. More serious yet, given the country’s acute macroeconomic imbalances, it would seem that eliminating corruption is a necessary but not sufficient condition for stabilising the Ukraine economy.

According to a recent report by the Institute for International Finance (IIF), Ukraine suffers from a twin deficit problem of the order of 9 per cent of gross domestic product. In addition, the country’s banking system is grossly undercapitalised and the banks’ mismatched loan book will be further impaired by the collapse of the currency. In the IIF’s view, at a minimum Ukraine needs a 4-5 per cent of GDP budget adjustment and an 80 per cent increase in administered gas prices.

Particularly considering Ukraine’s very poor IMF record and the social and economic pain that will be associated with the required degree of adjustment, it is fanciful to think that the IMF can conclude a large-scale multiyear lending programme for Ukraine before an inclusive and credible government is in place.

In the context of the acute political uncertainty at present characterising the country, to suggest that the IMF can make large-scale disbursements before the scheduled May 25 election is simply to engage in wishful thinking.

Desmond Lachman, American Enterprise Institute, Washington, DC, US

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman

What's new on AEI

Rebuilding American defense: A speech by Governor Bobby Jindal
image Smelling liberal, thinking conservative
image Stopping Ebola before it turns into a pandemic
image All too many reasons for pessimism about Europe
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Event Registration is Closed
Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Event Registration is Closed
Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.