IMF threatens to cut Ukraine aid over corruption
“Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported program can continue and be successful,” Christine Lagarde, the Washington-based lender’s managing director, said in a strongly worded statement.
The crisis has been boiling since the shock resignation last Wednesday of the reformist economy minister, Aivaras Abromavicius, in protest against alleged influence-peddling and state graft.
Lagarde, who last week said the reasons for his resignation were troubling, went much further Wednesday.
“I am concerned about Ukraine’s slow progress in improving governance and fighting corruption, and reducing the influence of vested interests in policymaking,” she said.
“It is vital that Ukraine’s leadership acts now to put the country back on a promising path of reform.”
If the IMF makes good on its threat, it would freeze all future lending under the $17.5 billion four-year aid program agreed in March 2015 on the condition that cash-strapped Ukraine delivers drastic reforms. It has disbursed $6.7 billion to date.
The IMF program is the keystone of a roughly $40 billion international bailout of Ukraine that could collapse, with almost-certain disastrous consequences for a country reeling from a severe recession and a pro-Russian insurgency in the east.
The IMF, by far, is the largest potential provider of aid for Ukraine, which also hopes to prop up its finances thanks to debt relief, bilateral loans and loans from multilateral development banks.
The Ukrainian prime minister, Arseniy Yatsenyuk, responded Wednesday to the IMF threat by renewing his pledge to reform the former Soviet republic.
“The recent political games could cost our country dearly,” Yatsenyuk told a meeting attended by foreign security and justice officials, as well foreign ambassadors, including those from the United States and Germany.
“We will not permit a return of all the old Ukrainian rules,” said Yatsenyuk, who threatened to quit Friday along with his entire government in an escalation of the political crisis following the economy minister’s resignation.
“We will only get help when the whole world sees that we are helping ourselves and moving our country forward.”
The stakes are also high for the IMF, which has been criticized for offering aid to Ukraine in 2015 under pressure from the US, its largest stakeholder, and the European Union, despite concerns about its debt, recession and the serious geopolitical conflict with neighboring Russia.
The IMF recently modified one of its key lending rules which had threatened the continuation of its aid to Ukraine over sustainability issues, triggering an angry response from Russia which said the move “seriously undermines” its confidence in the IMF’s decisions.
The latest developments with Ukraine also bring back bad memories for the IMF.
In 2008 and in 2010, the IMF abandoned two previous lines of credit for Ukraine — $16.4 billion and $15.1 billion, respectively — to denounce the lack of political will for reforms by the authorities at the time.
“Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history,” Lagarde said Wednesday.