IMF Mission to Kiev Aftermath

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June 1, 2015

IMF Mission to Kiev Aftermath

By Yurasumy

Translated from Russian by J.Hawk

The second IMF tranche is not as critical (at least, not yet) as the first one was, which means it’s too soon for hysterics. An IMF mission visited Ukraine between May 12 and 29 in order to study the state of Ukraine’s economy. They issued a number of statements which, put together, seem like a warning to Kiev.

Thus upon its departure the mission issued the following statement:

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“The Mission and Ukrainian authorities reach an understanding concerning policies which are necessary to conclude an assessment consistent with the agreement on financing via the EFF program, said the head of the mission Nikolay Georgiev. The Fund notes Ukrainian authorities’ commitment to reforms, and also declares that all the necessary steps have been implemented or are in the process of implementation. The mission is also certain that Ukraine will restructure its foreign debt in accordance with agreements.”

Comment. Initially Ukraine was supposed to restructure its debts by May 29, which did not happen.  Russia bluntly stated that there is not going to be restructured, unless… Incidentally, the head of mission forgot to specify which “steps” are still in process of implementation, and what their chances are.

And that’s not all: “The mission made a downward revision of Ukraine’s economic growth in 2015 to -9% and estimates an inflation rate of 46%.

Comment: Uh-huh. IMF initially forecast a -5.5% drop in 2015 and 30% inflation. And now this. Either IMF has some lousy forecasters, or it’s not forecast but wishful thinking which often do not correspond with reality.

J.Hawk’s Comment: The last comment is spot-on. Russia has been consistently outperforming IMF’s forecasts, while Ukraine has equally consistently underperformed them, and by a sizable margin at that. Even -9% is wishful thinking given Ukraine’s situation.

But the IMF’s overall signal is unmistakable. The situation is bad and getting worse. And the part about IMF’s being “certain” that Ukraine will restructure sounds like a signal to the creditors to hold out, because Ukraine has no choice but to restructure even if it means appointing Saakashvili to the Odessa region to turn over its port facilities to said creditors.

In retrospect, one can’t help but marvel how much of a godsend the Maidan, which destroyed Ukraine’s relationship with Russia, has been to Ukraine’s creditors. Someone like Yanukovych had considerable room to maneuver between Russia and the West. But Poroshenko doesn’t. Those bridges to Russia have been burnt. So now Western institutions and creditors can use the “abusive husband” negotiating strategy to full benefit. “You’ve got nowhere else to go, baby…”

The whole IMF/default farce provides a few hints as to the true state of relations between Poroshenko and Western leaders. I think it’s entirely too simplistic to say he is controlled by the West, or even that he takes orders from them. No, Poroshenko is very much his own person who, like everyone else, responds to incentives. As a political leader, I think he is someone of limited intelligence but considerable cunning, and the problem with that combination is that it may leave you oblivious to the fact that maybe you are dealing with people smarter than yourself. Not necessarily in Ukraine (in that little stagnant pool he is one of the sharpest knives in the drawer), but definitely on the global scale. So tactics he used so effectively domestically are beginning to backfire on him internationally.

And the sum total of Poroshenko’s political skill is this: he betrays his closest political allies, associates, and benefactors to expand power at their expense. He’s done that throughout his business and political career. Let’s not forget before the Maidan Poroshenko was one of the founding members of the Party of Regions (was he following orders from Washington then too?), and after the Maidan he’s been trying to eliminate his Maidan coalition (Yatsenyuk, Lyashko, Tyagnibok–who’s already pretty marginal, the Right Sector). And I suspect he also tried to betray Western creditors too. It seems unlikely the West gave Maidan political cover and recognition in the absence of certain political promises from Poroshenko which included handing over key Ukrainian assets to Western investment funds. Except that, once in power, Poroshenko most likely tried to renege on that commitment by invoking “war” with Russia. But in doing that Poroshenko was committing a cardinal sin in trying to con a con-man which is not a good idea if the con-man is both smarter than you and has more pull with Washington and Brussels than you.

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