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US Loans $3 Billion to Ukraine

US Loans $3 Billion to Ukraine

The International Monetary Fund (IMF), which is dominated by the U.S., just approved a $17 billion loan for the Ukraine.  

As the IMF’s largest participant with 17.69%, the United States will contribute over $3 billion. The first disbursement will be $3.2 billion and $2.2 billion of that amount will go to Russia’s state-controlled OAO Gazprom to pay down Ukraine’s natural gas debt.  Despite the cash improvement, Pro-Russian separatists seized government offices in Ukrainian towns on April 30th in a further sign that authorities in Kiev are losing control of the country’s eastern industrial heartland bordering Russia.

It is my estimate that the Ukraine will need a full $27 billion in new borrowings to cover this year’s $27 billion deficit.  Although the Ukrainian government has agreed to cut its budget deficit of 8.5% of gross domestic product this year and 6.1% in 2015, the projections were before Russia ended its 45% discount when the March Ukrainian revolutionaries threatened to join the NATO security alliance against Russia. 

Russia had been providing Ukraine with gas at $268.5 per 1,000 cubic meters versus its undiscounted “list price” of $485.  Currently, Ukraine is $3.49 billion in arrears to Gazprom and has been given until May 7th to make up the deficit or be cut-off. 

The IMF has twice frozen loans to Ukraine since 2008 for failure to pay.  The fund says that it is banking on the new interim government’s willingness to tackle unpopular measures such the Ukrainian state-run energy company NAK Naftogaz Ukrainy phasing out of natural-gas subsidies.

Eastern Ukraine was thrown into further chaos today as gunmen who turned up at dawn took control of official buildings in Horlivka, a town of almost 300,000 people, said a Reuters photographer. The heavily armed insurgents wore the same military uniforms without insignia as other unidentified “green men” who have joined pro-Russian protesters seizing control of towns across Ukraine’s Donbass coal and steel belt.

Some 30 pro-Russian separatists also seized a city council building in Alchevsk, further east in Luhansk region, Interfax-Ukraine news agency said. They took down the Ukrainian flag and flew a city banner before allowing workers to leave.

Daniel Baer, the U.S. ambassador to the OSCE, a European security watchdog which has monitors in the region, told reporters in Vienna: “I think it’s very clear that what is happening would not be happening without Russian involvement.”

The Donbass region is home to giant steel smelters and heavy plants that produce up to a third of Ukraine’s industrial output.  But an armed uprising began there in early April.  The Ukrainian government seems powerless to respond for fear of provoking an invasion by tens of thousands of Russian troops massed on the border.

The author welcomes feedback and will respond to comments by readers.

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