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1 August 1998
For immediate release
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IMF MISSION TO RECOMMEND 2.2-BILLION-DOLLAR EFF LOAN FOR UKRAINE
The visiting IMF mission announced on Friday, July 31, that it will recommend a loan of 2.2 billion dollars for Ukraine under its Extended Fund Facility (EFF) loan program.
Mohammad Shadman-Valavi, the assistant director of the IMF department responsible for Ukraine, said Ukraine and the IMF have reached a "tentative" agreement on the loan. According to him, Ukraine's President Leonid Kuchma is expected to sign a decree in the next few days ordering a cut in the budget deficit, one of the key conditions set by the IMF.
Parliament last week decided not to vote on a presidential decree that would have reduced the budget deficit this year from 3.6 to 2.5 percent of Gross Domestic Product (GDP). Because of the legislature's inaction on the issue, a follow-up decree by Kuchma will bring the required budget revision into effect.
"It's my pleasure to announce that we have reached a tentative agreement with the Ukrainian authorities on a program of stabilization and structural reforms," Shadman-Valavi said. "The Fund management intends to submit this program for approval by the board in the week of August 24," he added.
Ukraine must repay over 1 billion dollars this month on maturing treasury bills and foreign borrowing, including a 450-million-dollar bond lead-managed by Japan's Nomura, which matures on August 12.
U.S. Vice President Al Gore said he was encouraged by news of a deal between Ukraine and the International Monetary Fund and said President Leonid Kuchma was aware of the need for strong reform represented "the only sure path to growth and prosperity." During his visit to Ukraine, Gore urged the government to adopt a bold program of economic reform.
"President Kuchma knows that he and Ukraine's parliament must take strong, decisive steps to implement these reforms and begin a new era in Ukraine's economic policy -- one marked by sound public finance, an improved climate for private investment and expanded economic opportunity for the people of Ukraine," U.S. Vice President Al Gore said.
Commenting on the IMF mission's decision to recommend provision of the loan, Ukraine's Deputy Prime Minister Serhii Tyhypko said implementation of the loan program would ease the present financial crisis in Ukraine. Finance Minister Ihor Mitiukov said a decree reducing the 1998 state budget expenditures would soon be submitted to President Leonid Kuchma for signing. After the announcement, Ukraine Finance Minister Ihor Mityukov said ``there is no doubt we will pay the debts on time.''
National Bank of Ukraine Chairman Viktor Yushchenko told journalists that the bank may consider lowering interest rates, following the IMF mission's decision to recommend granting the loan. The interest rate is currently 82 percent per annum. Mr. Yushchenko further said that the EFF loan, which must still be approved by the IMF's board of directors at the end of August, would enable the National Bank of Ukraine to hold the hryvnia's exchange rate within the exchange rate corridor established for this year.
The World Bank plans to present at least two stalled Ukrainian loan projects worth a total of $600 million to its board at the start of September if Kiev adheres to an IMF agreed reform program, a Bank official said on Friday. That would mean $200 million immediately or within a couple of weeks. It would almost certainly mean money in September. The two loans in question were a Financial Sector Adjustment Loan and Enterprise Development and Adjustment Loan No. 2, each worth a total of $300 million, targeted for disbursal in $100 million tranches. The World Bank suspended its lending programs, worth a total of $2 billion in 1997, by which time about half of the money had been disbursed to Ukraine.