IMF calls for changes to anti-corruption court law, 2 other steps to restart lending in Ukraine

The International Monetary Fund called on Ukraine’s parliament to “quickly approve” a supplementary law submitted by President Petro Poroshenko to establish a High Anti-Corruption Court that will “adjudicate all cases under its jurisdiction, including all appeals of relevant first instance court decisions.”

The requirement that the High Anti-Corruption Court hears appeals of lower court decisions would replace a law passed earlier this month by parliament under which the regular, discredited courts would hear appeals of current cases. The shortcoming has been been condemned as granting effective amnesty to suspects currently facing corruption charges.

The IMF also called on Ukraine to raise household gas prices to market levels and reduce its state budget deficit to 2.5 percent of gross domestic product.

Parliament may vote on the changes on June 21.

A $17.5 billion lending program has been frozen for more than a year, after disbursements of $8.4 billion, because of Ukraine’s unwillingness to meet the lender’s conditions. The “realization (is) dawning” that the IMF requires more changes to unfreeze the program, London-based analyst Timothy Ash said.

The following June 19 statement was issued by Christine Lagarde, managing director of the IMF following a June 18 phone call with President Petro Poroshenko:

“I am very encouraged by the adoption of the law on the High Anti-Corruption Court by the Ukrainian parliament, which is an important step forward in the authorities’ fight against corruption. The new law paves the way for setting up an independent and strong anti-corruption court that together with existing institutions (National Anti-Corruption Bureau of Ukraine and the Special Anti-Corruption Prosecutor’s Office) will contribute to delivering the accountability and justice that the people of Ukraine demand of their public officials.

“In this regard, I commended the president for his leadership that enabled the approval of the law, and welcomed his intention to make the court operational by the end of this year. We agreed that it is now important for parliament to quickly approve the supplementary law submitted by the president to formally establish the court, as well as the necessary amendments to restore the requirement that the HACC will adjudicate all cases under its jurisdiction, including all appeals of relevant first instance court decisions, as it was in the draft law approved in the first reading.

“We also agreed to work closely together, including with the government, toward the timely implementation of this and other actions, notably related to gas prices and the budget, that are critical to allow the completion of the pending review under Ukraine’s IMF-supported program.”

 

Source: Kyiv Post

How 2018 Currency Champ Is Dodging the Emerging-Market Rout (Bloomberg)

 On the surface, Ukraine doesn’t look much like a country with a world-beating currency. An international bailout has been frozen for more than a year, its finance minister was fired last week and a Kremlin-backed war continues to simmer in its eastern climes.

But almost halfway through 2018, the hryvnia is the No. 1 performer against the dollar, despite other developing nations succumbing to a rout. For Oleg Churiy, Ukraine’s deputy central bank governor in charge of foreign-exchange policy, the key lies in avoiding a reliance on short-term capital flows to finance current-account deficits.

Oleg Churiy on June 8. Photographer: David J Prior/Bloomberg

“That’s quite dangerous because if you have negative sentiment, investors just leave the market and that puts enormous pressure on monetary policy and the exchange rate,” Churiy said in a June 8 interview in Bloomberg’s London office. “But that’s not the case for Ukraine.”

Despite being named among the five most-vulnerable emerging markets, the former Soviet republic has so far defied the naysayers as asset prices in places like Turkey and Argentina tumble. The country isn’t without problems: foreign reserves are relatively low, corruption remains rife and government debt is high. But, while delayed, the $17.5 billion rescue program from the International Monetary Fund has helped keep state finances in check.

Ukraine has seen about $550 million of “hot capital” arrive since last fall, of which about $200 million fled when market strife began to grip other developing countries, according to Churiy. “It’s a completely different story compared with other emerging markets,” he said.

Capital restrictions that largely date back to the aftermath of Ukraine’s last revolution in 2014 are partly responsible for the muted inflows of speculative cash. The Finance Ministry is speaking to global depositories to ease barriers to local debt markets and broaden its funding base.

Doing so “will make things more volatile, no doubt,” Churiy said. “But we definitely need foreign investors.”

The hryvnia has gained 7.5 percent against the dollar this year, beating Georgia’s lari and Colombia’s peso for the top spot globally. Unlike the gaping current-account shortfalls seen elsewhere, Ukraine posted a surplus in April. The central bank’s benchmark interest rate is 17 percent, lifted over inflation concerns, before the emerging-market turbulence began.

Rate Outlook

With inflation still about double the bank’s target, there’s not much chance of that rate being lowered any time soon.

“We don’t think we we’ll be able to ease monetary policy until we see a strong disinflation tendency,” Churiy said. “Tight monetary policy will allow us to bring inflation back to the target in the middle of next year, not earlier.”

The bank has also cited the holdups in IMF aid among reasons to keep rates high. Wrangling over an anti-corruption court and gas prices have delayed loan payments from the fund by more than a year

“Only if foreign investors are willing to keep sending money into Ukraine can the exchange-rate hold,” said Lutz Roehmeyer, Chief Investment Officer at Capitulum Asset Management in Berlin, who holds the nation’s local-currency debt. “Ukraine has to keep the reform momentum alive, stick to IMF medicine and present a plan to roll over sovereign debt.”

The IMF program is key to help boost cash coffers. Foreign reserves are set to total $21.6 billion by year-end, short of an earlier plan to reach $28 billion.

“We aren’t satisfied — that’s one of the reasons we’re relatively cautious about removing” capital restrictions, Churiy said. “For financial stability, the level of reserves is crucial and it’s not at the desired level.”

— With assistance by Daryna Krasnolutska, and Marton Eder

(Updates with IMF program in 11th paragraph, investor comment in 12th.)
 Updated on 

Ukrainian government plans to upgrade ports after decades of neglect

ODESA, Ukraine – Ukraine’s outdated and rundown ports might undergo a major revival as the government plans to invest Hr 44 billion, or $1.7 billion, into the infrastructure, according to Deputy Prime Minister Volodymyr Kistion, who spoke at the Ukrainian Ports Forum on May 31.

The first of its kind, the forum was held in Odesa, Ukraine’s third largest city with a population over 1 million people some 480 kilometers south from Kyiv. The 12-year plan includes 46 projects to upgrade Ukraine’s seaports in collaboration with other investors, Kistion said.

The projects mostly include construction of new stevedoring terminals and berths, as well as the reconstruction of old ones.

“This will give an opportunity to create more than 5,000 working places and provide a cargo capacity of 157 million tons of cargo per year,” Kistion said. Today’s capacity is 132 million tons.

A day earlier, Ukraine’s Cabinet of Ministers approved its national transport strategy “Drive Ukraine 2030” that covers 2018-2030.

The aim is to have 30 percent of the Black Sea region’s cargo turnover to be processed in Ukrainian ports by 2030.

As for Ukrainian rivers, they are meant by 2030 to transport a minimum of 50 million tons of cargo per year, meaning they would need to grow their cargo turnover six times comparing to the turnover of 2017, according to the Center for Transport Strategies in Ukraine, an independent consulting and information center.

Risks for investors

Such plans sound impressive, but there are obvious obstacles that potential investors will face.

Although Ukraine rose in the World Bank’s Doing Business rating by 20 points during the past three years, it is still as low as 76th place, between Bhutan and the Kyrgyz Republic, countries with low economic output.

In terms of the seaport industry, the most difficult issue for investors and shipment companies is caused by extremely high port tariffs.

Even though Ukrainian port fees have been reduced by 20 percent since Jan. 1, tariffs are one of the highest in the region.

Alexander Varvarenko, CEO of Varamar shipping company, which operates around 30 ships across the world, told the Kyiv Post that “Ukrainian ports are the most expensive in the world. For example, if you take a Panamax ship, which carries 50-70,000 tons of cargo, then to enter Romania or Bulgaria will cost around $ 50-60,000, to enter Ukraine – $180,000.”

Moreover, the country’s ports are not part of any free economic zones, designated areas where ships are either not taxed at all or taxed very lightly, Maxim Stepanov, governor of Odesa, said.

“Ukraine is the only country in the Black Sea region that does not use this tool. In Romania, there are six free economic zones, in Turkey – about 20, in Ukraine – none,” Stepanov said.

In addition to high tariffs, Ukraine’s ports have been neglected during the past 25 years because of corruption and poor strategic planning by the government, making them unattractive to investors who are thinking of entering the region.

Some ports can barely survive today. For example, the Reni Sea Port in Odesa Oblast reloaded only 200,000 tons of cargo in 2017, which is 50 times less than in the early 1990s, Stepanov said.

“The port is in a coma – it will either die, or we have to do something about it. No investor wants to come here,” he said. The port occupies “94 hectares of land of which only 24 hectares are used.”

Andriy Smirnov, head of seaborne shipments at Metinvest, a steel and mining company owned by Ukrainian oligarch Rinat Akhmetov, agrees.

“We have difficulties with very poor handling of equipment in ports, corruption in Ukrainian ports, problems with threats and with ecological inspectors,” Smirnov said. “It is really destroying business.”

By Natalia Datskevych
Source: Kyiv Post