The IMF announced that it discovered a $15 billion “hole” in its financing for Ukraine, which was intended to stave off the country’s total fiscal collapse. Reports on the Ukrainian economy were already pretty miserable, in large part because the war-torn, breakaway Donbass regions in the east were the center of the country’s coal production and heavy industry, accounting for north of 15% of the whole economy. The FT reports:
The IMF’s calculations lay bare the perilous state of Ukraine’s economy and hint at the financial burden of propping up Kiev as it battles Russian-backed separatist rebels in its eastern regions.The additional cash needed would come on top of the $17bn IMF rescue announced in April and due to last until 2016. Senior western officials involved in the talks said there is only tepid support for such a sizeable increase at a time Kiev has dragged its feet over the economic and administrative reforms required by the programme. […]The scale of the problem became clearer last week after Ukraine’s central bank revealed its foreign currency reserves had dropped from $16.3bn in May to just $9bn in November. The data also showed the value of its gold reserves had dropped by nearly half over the same period. A person with direct knowledge of the central bank’s policy said part of the drop had been due to large-scale gold sales.
This does not exactly inspire confidence in the IMF and the other international institutions who are handling the situation in Ukraine. And whether or not Ukraine itself is “dragging its feet” on reform (the signs from Kiev have arguably been exceeding political expectations), the IMF announcement makes it painfully clear that the Western policy on Ukraine’s economic troubles (and its troubles in general) is almost terminally incoherent:
An IMF mission is currently in Kiev for talks with the government on the future of the programme.According to two people who attended the EU meeting, concern over Ukrainian finances has become so severe that Wolfgang Schäuble, the German finance minister, said he had called his Russian counterpart, Anton Siluanov, to ask him to roll over a $3bn loan the Kremlin made to Kiev last year.
To put the above in other words: Germany is asking Russia to roll over $3 billion in Ukrainian debt while Russia is under Western sanctions, including from Germany. Does anybody really know what the policy is here?