The government of Ukraine has signed off on the long awaited new $14.9bn stand by programme with the IMF over the weekend.
The deal will remove a lot of uncertainty for the Ukraine’s economy for the rest of the year and put the Ukraine’s finances on a solid footing for the time being.
Doubt over the deal has undermined the stability of the economy after the IMF suspended the deal last year after the previous administration repeatedly broke agreed parameters of the old deal.
The new deal clears the way for the government to concentrate on reforms and buys time to get them into place and working. As Ukraine has basically wasted the last five years on political shenanigans the state is actually in a good position: so little was done that doing only a little in the way of real reform should produce dramatic results and kick off a virtual cycle of spending-profits-investment-reform as well as suck in more investment.
This is the test for Ukrainian president Viktor Yanukovych: he was dissed as Moscow’s lackey in the run up to the presidential elections in February and continues to be dogged by allegations of pandering to vested interests inside the country (and in government). However, rumours we are hearing at bne suggest that Yanukovych has already put a lot of distance between himself and Rinat Akhmetov, owner of System Capital Management and his original backer, and is now trying to play a delicate balancing act, playing off oligarch interests to give himself some middle ground to operate in – it is still too early in Ukraine’s evolution for the president to ignore the oligarchs complete as in Russia.
All eyes will now be on the government and its ability to match its reformist rhetoric with action.
Below is a flash note from Dragon Capital, Ukraine’s biggest investment bank.