Clouds hang over international aid plan for Ukraine

GMT 21:29 2015 Friday ,20 February

Arab Today, arab today Clouds hang over international aid plan for Ukraine

Local resident walks past a damaged building in the eastern Ukrainian city
Washington - AFP

A new front for Ukraine: As conflict persists in the east, the massive financial lifeline pledged by the international community is rife with uncertainties, especially linked to the country's debt.
Strangled by 10 months of deadly fighting between government forces and pro-Russia separatists, Ukraine's backers have proposed a new $40 billion, four-year deal to support government finances and combat a severe recession.
The aid program announced in mid-February by the managing director of the International Monetary Fund, Christine Lagarde, would see the crisis lender contribute as much as $17.5 billion in loans, replacing a previous program that has proved inadequate.
Lagarde broadly sketched out the list of other contributors: donor countries, multilateral institutions and Ukraine's private creditors, called on to ease the country's debt burden by forgiving debt or extending its repayment.
This last source of financing is the most problematic.
Debt talks have not yet begun in Kiev, but the IMF-led plan has already targeted $15 billion in relief from private sector creditors, the Institute of International Finance, which represents major global financial institutions, criticized this week.
"The private sector is expected to contribute without any consultation. This is not a very friendly way to do these things," said Ondrej Schneider, the IIF's chief economist for European emerging-market countries including Ukraine.
The IMF expects to approve its new Ukraine aid program by early March, with the result of debt talks being still unknown.
"The Ukranian government discussions with their creditors will not be complete by then," acknowledged IMF spokesman Gerry Rice Thursday.
- IMF in 'uncharted waters' -
Yet the doubt over the private sector component of the new Ukraine aid program has fed anxiety within the IMF.
"My concern is that we run the risk of not having a sufficiently clear picture about the contribution from other sources, private and official," said Paulo Nogueira Batista, the executive director at the IMF for Brazil and 10 other countries, speaking on his own behalf.
"It might mean that the Fund will take an excessive burden," he said.
Clearly, the IMF could find itself more alone than expected if debt talks do not produce the hoped-for results.
Unlike the IMF-EU rescue of Greece, the Europeans are not expected to provide a large amount of aid for Ukraine, which is not part of the European Union.
For the United States, a staunch supporter of Kiev, the Obama administration is considering $2 billion in loan guarantees, part of which would have to be approved by the Congress.
"There's a substantial part of this financial envelope which is unaccounted for, and this reflects the unique circumstances under which this program is being negotiated," said Domenico Lombardi, a former IMF executive board member.
Lombardi pointed out the difficulty of reducing the debt of a country embroiled in conflict.
"These are really uncharted waters for the IMF," he added.
Despite these unknowns, the IMF has exuded optimism that the plan will succeed.
"We have confidence that the $40 billion package financing will come together... in time," said Rice, even while admitting that the IMF executive board would decide on its $17.5 billion contribution without knowing "every detail" of the entire program.
"What we need by the time of the board meeting is... a meaningful sense that the financing package is coming together in the right direction," he said.


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