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Emerging Markets

Ukraine hopeful of unblocking $5bn IMF loan amid legal rows

A legal ruling that appears to cast doubt on the independence of Ukraine’s anti-corruption unit has delayed a loan from the IMF and comes in the wake of a row over a decision to ‘reprimand’ two independent members of the country’s central bank

The next tranche of Ukraine’s $5bn IMF support programme has been delayed by a ruling from the country’s constitutional court that could threaten the autonomy of the National Anti-Corruption Bureau (NABU) amid several areas of contention that could cause friction for the deal.

But while the SDR500m ($858m) disbursement scheduled for September has been delayed, hopes are high that a compromise will be found soon.

Artem Shevalev, EBRD’s board member for Ukraine, believes that the dialogue with the IMF will be easy to salvage “as long as there is strong and vocal support of NABU and the rule of law from the highest level politically”.

Ukraine’s constitutional court in September deemed some of the provisions of the law governing NABU unconstitutional. These provisions relate primarily to the president’s powers to staff the bureau. NABU believes the decision is “an attempt to block the fight against political corruption and stop the cleansing of the judiciary”.

Yuriy Butsa, government commissioner for public debt management, believes that “it will take a few weeks to discuss the best approach.

“On the good side, the constitutional court decision did not undermine the current operations of the National Anti-Corruption Bureau,” he said. “We have already agreed with the IMF that together with our international partners there should be piece of legislation developed that should reflect the Constitutional Court ruling.”

‘Alarming signal’

NABU was set up in 2015 with the backing of the IMF and the international community, and the court’s decision “raised the concerns of our international partners, as well as inside Ukraine”, said Butsa.

But the judicial challenge to NABU is only one of the potential stumbling blocks for the IMF’s continued support of Ukraine.

IMF experts are in negotiations with Ukrainian authorities to discuss the proposed budget. Sergey Nikolaychuk, head of macroeconomic research at ICU in Kyiv, said: “The deficit of 6% was not popular with the IMF.” Nikolaychuk expects the negotiations to result in a new budget with a lower deficit.

Furthermore, last week the IMF representative in Ukraine criticised the decision by the council of the National Bank of Ukraine to reprimand two of its board members.

The pair were the only two deputy governors on the NBU board who served under Yakov Smoliy, who resigned from the position of governor in early July, causing widespread concern in the international investor community.

Kateryna Rozhkova, one of the reprimanded deputy governors, said the reprimand was “an alarming signal for the independence of the NBU”.

However, despite the recent friction, Nikolaychuk said that, provided the NBU continued to follow the roadmap set out by the Smoliy administration as it had so far, the NBU’s governance would not be an obstacle for continued IMF cooperation.

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