Thursday, March 26, 2009

Japan, Ukraine and the IMF

The iron lady of Ukraine and current Prime Minister, Yulia Tymoshenko, has asked Japan for financial help to reconstruct pipelines, infrastructure and the like. Japan. With an economy that is tanking. Japan, unsurprisingly, directed her to the IMF to which it has recently contributed a cool $100 million(adjusted for deflation, I guess).

OK. Aside from how this request to Japan makes the current Ukrainian government look, sending them to the IMF is, well, almost a non-starter, considering in the board game "International Aid" if the player lands on "go to IMF, do not pass go" it is a recipe for social trouble. Not something Ukraine needs at the moment. Not that I have much against the IMF, it is just that they seem to be in some "Dr. Who" time warp with financial requirements which appear largely designed to foment social unrest and revolution.

The IMF recently demanded as a requirement for the next tranche of funding to Ukraine that it show a budget with a deficit of no more that 3%. In this economic climate that is not only impossible, but counterproductive. France, for example, is projecting a 5.6% deficit. Germany appears to be ok, but that is unlikely to last. Italy has exceeded the EU mandated 3% deficit. England, well...

Of course, none of the above are asking the IMF for assistance. The IMF standards, at this point, do not reflect reality, as the unlucky Romanians are about to find out. The next tranche to Ukraine will likely be disbursed based on smoke and mirrors - and the social cost will be high.

Having said that - what was the Prime Minister thinking in asking Japan?

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