IMF cooperation might be conditional on debt operation, Jaresko says

Макроэкономика 25.03.2015 The IMF might decline to send Ukraine's second tranche (USD 5 bln expected in 2H15) if the government fails to restructure its debt with private creditors, Finance Minister Natalie Jaresko said in a March 23 interview with Bloomberg News. “If we aren’t able to come to an agreement by May/June, that jeopordises the IMF loan," Jaresko stated. “If we are out of the IMF program and we are not receiving official support from anyone, it is much worse for the creditors’ interests. I’m confident right now, given the conversations we’ve been having, that we will find a common understanding.” Jaresko is currently traveling throughout Europe to convince private creditors to restructure their debt with the Ukrainian government as part of a USD 15 bln debt operation. Alexander Paraschiy: Though Jaresko has much more information in her possession on the potential IMF reaction to the debt operation's success, we did not find any evidence in the IMF memorandum or other statements of IMF officials that further cooperation with the Fund is conditional on the success of the debt restructuring that's currently being attempted. What's more, in the transcript of a March 12 conference call on the extended fund facility arrangement with Ukraine, IMF European Department Deputy Director Thanos Arvanitis said that “for us, what is very important is that at the end of the debt operation, when it’s finalized, the debt is sustainable, public finances become stronger, and the economy can grow again. I think that this operation at this moment is in the best interest of not only Ukraine, but also its creditors, to make sure that the debt is sustainable and serviceable.” To put it differently, the IMF position sounds more as if the USD 15 bln debt relief outlined in the memorandum is more a desired outcome rather than a conditionality for further cooperation with Ukraine. At the end of the day, the outcome isn't entirely dependent on Ukrainian authorities. On the other hand, it’s clear that Ukraine’s macro assumptions in the joint documents with the IMF should be revised in case the debt operation brings no success. In particular, Ukraine is planning to see end-2015 gross international reserves at the level of USD 18.3 bln (roughly 4.5 months of future imports), out of which USD 5.2 bln is planned as a gain from the debt operation. If this operation is not that successful, Ukraine and the IMF will either have to agree on smaller reserves (which would be slightly above three months of future imports – not that bad for such a distressed economy) or draw upon other sources of reserves.