6:59 AM Sunday, October 21, 2018
Morgan Stanley Sees Ukraine Delivering Reforms for IMF in 2018
Timothy Ash worries that Poroshenko pretends to go along with IMF, in order to get commercial bank financing
image/svg+xml Kyiv Lutsk Rivne Zhytomyr Lviv Ternopil Khmelnytskyi Uzhgorod Chernivtsi Vinnytsia Chernigiv Sumy Kharkiv Poltava Cherkasy Kirovohrad Lugansk Dnipropetrovsk Donetsk Zaporizhzhia Mykolaiv Odesa Kherson Simferopol Sevastopol Ivano- Frankivsk

By Kateryna Choursina
-- Ukrainian authorities will prefer staying on
track with IMF program to avoid less favorable scenario, Morgan
Stanley economist for Russia and CIS, Alina Slyusarchuk, says in
emailed note.
* Authorities will deliver on anti-corruption court and increase
gas tariffs as required by IMF
* Ukraine will be able to secure $1.9b tranche in mid-2018
* Without IMF funds, Ukraine to face weaker UAH, higher
inflation and economic downturn
* Popularity of government will suffer more without IMF program
* IMF program to unlock access to at least $4.7b in 2018-19;
Ukraine’s budget FX needs will be $7.1b during that period
* Cooperation with IMF will support demand of foreign investors
for Ukrainian Eurobonds
* Good opportunity now to buy Ukraine’s 2026 bond
* NOTE: Ukraine’s Chances for IMF Tranche in 2018 Are Slim, Citi

Prime Minister Groysman meets Wednesday in Kyiv with Cyril Muller, visiting World Bank vice president of Europe and Central Asia (UNIAN/Vladislav Musienko )

Timothy Ash writes: I am afraid way too optimistic. The IMF will be used as the “teaser” for markets. If Poroshenko can come to market - which I think he can - without IMF lending back on track, he will. This will mean he can ride through pressure to deliver an IMF/Venice Commission anti corruption court bill.

We have been there too many times with other countries who have played the IMF for fools - including Turkey, Hungary and Zambia.

All talked the talk of doing an IMF deal, then used this to talk up markets and investors, came to market, and then failed to deliver on IMF deal as they no longer needed IMF cash. Turkey still delivered reforms, at least to 2011. Zambia did not. Hungary’s report card is mixed, but they slashed public and external debt without an IMF program.

Let’s face it, Ukraine’s elites are terrified by the prospect of an effective anti corruption program, which means people actually going to jail. But without this, I don’t see foreign investment sufficient to transform the economy and bring growth. The current 2% growth trajectory is dismal and now half the Emerging European average, and, importantly, from a low base.

Coming to market is fine as an alternative to the IMF as a short term stop gap to get the administration to elections. But it means structural reforms needed to improve the health of the economy long term will be stalled.

So basically the administration will be sacrificing the long term good of the economy and country for their short term electoral gain. We have seen that many times before -- in Ukraine and numerous other countries.

The international financial institutions need to be more vocal to the institutional investor base about where the current program stands. Otherwise, markets will finance Ukraine, arguably under false pretenses that IMF lending is close to being put back on track.

Timothy Ash is senior sovereign strategist for emerging markets at BlueBay Asset Management in London and a member of the UBJ Editorial Board.

Posted Feb. 15, 2018

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