7:21 AM Sunday, October 21, 2018
Ukraine’s Danylyuk Hopes for IMF Tranche in May
Muddling through may not break IMF impasse; Economists debate Ukraine’s interest rates
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

(Bloomberg) -- Ukraine is planning to fulfill all

requirements for IMF review by May, Interfax-Ukraine news wire
reports, citing Finance Minister Oleksandr Danylyuk in Davos.
* Ukraine will adopt law on anti-corruption court and appoint
central bank governor
* Lagarde Reiterates IMF Ready to Back Ukraine in Reform

To contact the reporter on this story:
Kateryna Choursina in Kiev at

President Poroshenko speaks Thursday morning at the Ukraine House in Davos, as CNN's Fareed Zakaria moderates (UNIAN/MIkhail Palinchak)

Timothy Ash writes: Good luck to Danylyuk. He is leading the reform effort in Ukraine, with the NBU, and a few other ministries.

Problems seem to be elsewhere -- in particular in the Rada and around the presidency, where major vested interests now are pulling back against reform, particular on the anti-corruption agenda.

I remember being promised last year the next tranche in May/June, 2017, so that would be a year late. Remember: this would be 13 months after the last tranche disbursal -- in April 2017.

On the IMF wish list: the privatization bill was passed last week. It seems likely that acting NBU governor, Smoliy will be confirmed by the Rada on Feb 7-8. Remember: Poroshenko supposedly promised last April, around the IMF spring meetings, that the Raiffeissen Bank Aval chairman, Lavrenchuk -- the market favorite -- would be confirmed as NBU governor in spring, 2017.

Ten months later, we still are waiting for a new governor. I think there was dispute as to whether Lavrenchuk/Smoliy would accept political appointments at the NBU/NBU board. I think both resisted, which is good news. Smoliy is accepted as doing a good job as acting governor, and is respected at the Rada. He has a very long career history in the banking sector, and has spent time cultivating relations in the Rada. He seems to speak the language of deputies.

That said, he also is seen as independent and able to defend the institutional integrity of the NBU -- or that is the read I get. So, it seems to be a win-win. Not sure why Poroshenko took so long. Today's Monetary Policy Commission meeting will send a strong signal. If the NBU raises rates, it shows that Smoliy is a serious player, and really is prepared to defend the integrity of the NBU.

The gas price hike story still hangs there. Remember liberalization was agreed for sign off for the 3rd review in April, 2017. In very bad form, the Ukrainian government went back on something that had been agreed with the Fund. I sense that we could now see this signed off for the next heating season, for October 2018, albeit that does get close to elections.

But really center stage for IMF/Poroshenko is the anti-corruption court. This is the battle ground. Poroshenko is foot dragging on the issue of aligning this with Venice Commission recommendations.

Most people assume this is because elites want to control the courts to make sure that they "manage" the anti-corruption agenda. Obviously for the IMF, NGOs and the IFIs, this is totally unacceptableLikely, we will see Poroshenko playing for time -- giving in to the IMF on the NBU governor (not really giving in, as this was promised almost one year ago), perhaps doing a bit more to align pension reform with IMF requirements (remember the bill passed last year is still not really IMF-compliant), perhaps agreeing on gas liberalization and further energy sector reform, and then hoping the IMF cuts some slack on the anti-corruption courts.

President Poroshenko (center) and Finance Minister Danylyuk walk through the snow in Davos Thursday morning. (UNIAN/MIkhail Palinchak)

Perhaps Ukraine will try coming to market before then. They will hope this will pressure the Fund to give way on this review, even if the anti-corruption court bill falls short.

I still don't see the IMF bowing on the anti-corruption court. This now is so central to Ukraine's growth recovery story.

Growth is stalled now, sub-2%, and falling (remarkably, from a low base), with no investment, and a brain drain. There are now 1.2m Ukrainian workers in Poland, many more elsewhere, perhaps 6-7 million. Largely, because slow progress is being made in fighting corruption. The IMF realizes this - although Lagarde's statement seemed to give the wrong kind of signals from Davos. She should have totally spelled it out on the anti-corruption courts.

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

Slider photo: Christine Lagarde, IMF Managing Director talks in Davos Wednesday evening before her meeting with President Poroshenko (UNIAN/Mikhail Palinchak)

Surely They Won’t Raise Rates Again, Ukraine Economists Say
2018-01-24 13:42:39.200 GMT

By Volodymyr Verbyany
(Bloomberg) -- Ukraine’s central bank says it’s serious
about tackling inflation -- but it’s struggling to convince
economists what it might do about it.

Analysts have failed to predict the last two interest-rate
hikes, even as the bank expressed concern about persistent
inflation. The National Bank of Ukraine meets next on Thursday.
Eleven of 13 economists predict it will hold its key rate at
14.5 percent, though two see a hike, to 15 percent or even 15.5
percent, after inflation accelerated last month.

Improving communication with the market is a priority for

Yakiv Smoliy, who’s set to switch from acting to permanent

governor of the former Soviet republic’s central bank. Having
begun transitioning to inflation targeting in 2016, the bank has
moved quickly to counter resurgent consumer-price growth with
higher rates, despite risks to already-fading economic
expansion. Delays to Ukraine’s $17.5 billion bailout haven’t
helped, denting the hryvnia.
“It takes some time to understand how the central bank
works under inflation targeting, how it makes its decisions,”
Deputy Governor Dmytro Sologub said in an interview. The bank is
holding more meetings with economists, he said. One get-together
took place this month.
Other officials are less diplomatic. Tymofiy Mylovanov, a
member of the bank’s council and an associate professor at the
University of Pittsburgh, said last year that analysts weren’t
paying enough attention to officials’ comments.
The bank releases statements following monthly data on
consumer prices and after its interest-rate meetings. Officials
speak to reporters after each monetary-policy decision, with the
event broadcast online. The bank also publishes a quarterly
inflation report, the next of which is due Thursday.
Before October’s hike, the bank pledged to use “monetary
tools” to contain inflation, which topped its estimate the
previous month. After raising its benchmark, it warned of more
increases should inflation remain a concern. Before the December
meeting, it described consumer-price dynamics as deviating
“significantly” from target.
But the messaging hasn’t satisfied everyone.
“The quality of the central bank’s communication could have
been better,” Vladimir Osakovskiy, an economist at Bank of
America Corp., said by phone. He suggests conference calls the
day after rate announcements, like some central banks do. He
says predictions are often wrong elsewhere too, citing a rate
cut in Russia in December that was twice the size economists had
Osakovskiy predicted rates would be held in October and
didn’t participate in Bloomberg’s December survey.

Doubting Resolve?

Economists were correct more often than they were wrong as
Ukraine slashed borrowing costs from a record-high 30 percent in
2015. It’s rate increases they’ve struggled with. But rather
than communication, the issue may be credibility. Some may have
doubted Smoliy’s resolve as acting governor to resist government
calls for looser policy.
“The problem is that markets haven’t believed so far that
they could raise rates,” Maria Repko, deputy director of the
Centre for Economic Strategy in Kiev, said by email.
With Smoliy’s appointment set for parliamentary approval
next month, he and his colleagues may feel emboldened to lift
rates further this week. Consumer-price growth is more than
double the mid-point of the bank’s target, reaching an annual
13.7 percent in December. Businesses are projecting faster
inflation in 2018 than before.
The bank warned last month that it “may resort to further
key rate hikes” if “fundamental inflation risks increase

--With assistance from Daryna Krasnolutska and Andre Tartar.

To contact the reporter on this story:
Volodymyr Verbyany in Kiev at

Timothy Ash: Given the UAH weakness we have seen over the past few months, disappointing inflation, the fact that the NBU is eager to prove its independence/inflation credentials, it seems more likely than not that it will further raise rates.

Maybe the only consideration might be that Smoliy is likely to appear before the Rada the week after to get his confirmed as the new governor of the NBU. Raising rates before that meeting might annoy some in the Rada. But I think it would mark his own credibility/independence out in the eyes of the market and the international financial institutions.

Remember: Lavrenchuk seemingly had been given the nod to Lagarde et al back last April. So Smoliy is seen, to a degree, as the second choice. In the interim, he has done a very good job holding the fort as acting governor.

Posted Jan. 25, 2017

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