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. Last Updated: 07/27/2016

Kiev Seeks to Satisfy IMF and Parliament

KIEV -- Ukraine is negotiating an economic stabilization program with the International Monetary Fund that would secure up to $700 million in loans this autumn.


But change in one of Europe's weakest economies will not come without a struggle.


Economists say that while newly elected President Leonid Kuchma is searching for a way to drag his country's economy out of its crisis, the route chosen is unlikely to be very radical or very rapid.


The two loans of $350 million each, if approved, would pave the way for the remaining $4 billion in international financing approved by the Group of Seven leading industrialized nations last month in Naples.


"Under optimal circumstances, the funding could come through well before the end of the year," said Lawrence De Milner, the IMF representative in Kiev.


But commentators say that Kuchma, formerly prime minister and before that director of a mammoth rocket factory, is likely to stick to his campaign promise of "evolutionary, not revolutionary" reforms.


"The concept of reforms, if you like, is pragmatic radicalism," said Volodymyr Kuznetsov, 34, President Leonid Kuchma's economic adviser. "This will not be like the shock therapy that Russia went through in 1992 ... The government is quite conservative and parliament even more so."


Nobody disputes that something has to be done to boost Ukraine's economy.


Industrial output declined 36 percent in the first six months of the year, less than 10 percent of state enterprises have been privatized and the budget deficit is estimated at between 12 and 20 percent of gross domestic product.


Shortly after taking office, Kuchma ordered the cabinet to prepare a string of draft decrees -- on tax reform, currency regulation, protecting domestic markets and fixing the budget -- and gave himself direct control over central and local government to direct the path and pace of economic reforms.


"They're saying most of the right things. But it's too early to tell at this point whether they'll actually go through with them, and when," said one Western economist.


The only decree signed so far limits loans to firms kept afloat for years by huge state subsidies.


"There are basic measures any country has to take to get out of crisis -- cut the budget deficit, privatize, liberalize prices, foreign economic policy and the currency rate," Kuznetsov said.


"And we'll do all that ... Reforms must be radical, but not in such a way as to make people suffer."


Ukraine's stormy domestic politics has already served up some additional bumps on the path to reform.


The communist-dominated parliament has temporarily banned most privatization pending a decision on which types of enterprises will be allowed into private hands after its summer recess.


Kuchma will have to face the parliament in mid-September, when he is expected to present an economic program -- about the same time as Ukraine is to make final proposals to the IMF for approval.


Winter will throw up more stumbling blocks.


Monthly inflation, standing at 2.1 percent in July, has been pared down from hyperinflationary 90 percent last year by the central bank's strict controls on credits.


But Kuznetsov predicts inflation will rise to about 8-10 percent next month because of planned budget expenditures.


The budget will have to cover state purchases of grain, sugar and other farm produce as the harvest comes in.


Still more problematic, Ukraine has barely dented its huge foreign debt to Russia, largely for oil and gas.


On Wednesday, Ukraine signed a deal with the Russian gas giant Gazprom, under which Kiev will repay about 25 percent of its $1.2 billion gas debt. But how it will raise the cash is still unclear.