There was an uproar in the Ukrainian Parliament (Supreme Rada) yesterday, when twice in a row, an insufficient number of MPs voted on a resolution to begin discussing the austerity package presented by the IMF (see below). Speaker of the Rada and illegally appointed Acting President Alexander Turchynov thundered that the abstentions were “a provocation against Ukraine.” The fascist Svoboda party leader, Oleh Tyahnybok, shouted out denunciations of the Party of Regions and Communist Party, while Maidan activist and Radical Party head Oleh Lyashko yelled, “You either vote and help us save Ukraine [sic] from the catastrophe you brought on, or go to hell or straight to jail!” Members of Vitali Klitschko’s Udar Party also abstained on one of the votes.
Prime Minister Arseni Yatsenyuk told the Rada that without getting the first IMF tranche in April, Ukraine will default. “If the country were a commercial entity, we would be bankrupt,” the Kyiv Post reported him saying in a speech motivating acceptance of the IMF conditionalities. “Ukraine needs to move on to tough and unpopular reforms, which should have been done many years ago,” said Yats.
After getting 239 votes (with 226 needed) to begin debate on the austerity package, the Rada also voted up its umbrella legislation. Interfax-Ukraine reports that a law accepting the government’s budget policy “as a whole” passed, with 228 deputies voting to revise the 2014 budget. Spending is to be cut by 25.5 billion hryvnias, or currently around $2.5 billion. A slightly larger number, 246, voted up the law “On Preventing Financial Catastrophe and Creating Preconditions for Economic Growth in Ukraine.” It aims to increase revenue by 44 billion hryvnias, largely through tax increases.
Turchynov, speaking also today at the Committee on Parliamentary Cooperation between Ukraine and the EU, declared that what Ukraine is doing now represents the first steps toward “the aim of full membership in the European Union.” The Ukrainian population is already feeling EU-style austerity. With retail natural gas prices set to double on May 1, wage arrears are running 23.5% higher than last year. The coup-installed government has already announced a plan to save $1.2 billion by not raising the minimum wage, while slashing various subsidies and social programs. Mass layoffs are coming, too, with the laws passed today. For example, the government plans to lay off 80,000 policemen, despite continuing tension in the streets.
IMF Previews Conditionalities That Will Make Ukraine a “Greece”
On Wednesday, the International Monetary Fund announced its conditions for making a $14-18 billion loan to Ukraine, which Ukrainian negotiators and the IMF described as “painful”: budget cuts, 50% higher tariffs on gas prices, and a less stable exchange rate. This is precisely why sane Ukrainians chose cooperation with Russia, back many months ago!
IMF official Nikolay Gueorguiev declared that Ukraine must perform certain “prior actions” before the IMF’s Board approves the initial loan sometime in April. These include steps “institutionalizing the flexible rate regime” and reform of Ukraine’s energy sector. Ukraine faces dwindling foreign-exchange reserves, a deepening budget deficit, and substantial debts ($1.89 billion) to Russia’s natural gas company, Gazprom.
The promised financing from the international community that the IMF program will supposedly unlock amounts to $27 billion over the next two years.
Observers should remember that Ukraine’s two previous loan deals with the IMF failed, because the government refused to raise prices on natural gas to consumers. “Energy sector reforms will focus on reducing this sector’s fiscal drag… A key step…is to move retail gas and heating tariffs to full cost recovery.” The new mandated 50% increase in “tariffs” on gas will begin May 1.
Ukraine’s currency, the hryvnia, has fallen sharply since it began floating in February. The IMF said the hryvnia was previously “overvalued.”
The Ukrainian Rada still has to okay the deal.