IMF Praise Hope for Ukraine

The International Monetary Fund’s Poul Thomsen tells Handelsblatt in an exclusive interview that the challenges confronting Ukraine are not insurmountable and the country is already making progress toward its financial targets.
Poul Thomsen knows his Greeks from his Ukrainians.

The International Monetary Fund's Europe director, Poul Thomsen, is a specialist for very difficult cases. The Dane has spent years dealing with Greece. He is now turning his attention to Ukraine, which in March turned to the IMF for support to stave off default, as it struggled with the effects of massive political change following the ousting of its president last year and the conflict with pro-Russian rebels in eastern Ukraine.

Handelsblatt: Kiev is supposed to receive $40 billion (€37.8 billion) in aid. Are we looking at another bottomless pit like Greece?

Poul Thomsen: You can’t compare the two countries. The situation is completely different. As far as Ukraine goes, I want to stress that many of the political taboos that were holding the country back in the past are being addressed. That is impressive.

Which taboos?

Ukraine has floated its currency and raised gas prices – by 278 percent in early April – despite the shortfall of tax revenues from embattled eastern Ukraine. Despite the increase in the defense budget, Kiev has met its cost-cutting targets.

And, in exchange, the economy has collapsed, banks are dying and the country is experiencing a flight of capital.

I’m not trying to gloss over anything. The conflict in the east is unresolved. We must improve the investment climate, fight corruption, and, at the same time, overcome fierce opposition. That takes time, which is why the program is running for four years.

Are you seeing any success?

Financially, the situation already has stabilized and the drain of capital has been stopped. Naturally, there are risks for our aid program. That is why it is based on very conservative estimates. A significant escalation of the conflict would present a problem for the program. On the other hand, it could cope with a scenario in which it takes longer until the conflict is settled and the situation normalizes. But, naturally, we are hoping for an easing of tensions.

Do you expect Ukraine to come to an understanding over debt restructuring with its creditors and also with Russia?

The debt operation is necessary because, on the one hand, Ukraine needs the liquidity support resulting from it – about $15 billion over the course of the program – and, on the other hand, because we must be sure debt remains at a sustainable level in relation to the economy. There are a number of ways this can be achieved and they will be talking points for Ukraine and its creditors. These discussions, with Russia included, are now in progress.

If no agreement is reached this summer, would that be the end of the program?

Not necessarily. We can continue programs when no agreement has been reached with private creditors, meaning there are deficits, so long as the government is demonstratively doing its best.

The interview was conducted by Jan Hildebrand and Moritz Koch. To contact them: [email protected] and [email protected]