It’s a big few days for Ukraine. After the IMF reached a US$5.5bn agreement with Ukraine over the weekend, its President, Volodymyr Zelensky, today meets Russian President Vladimir Putin for talks that could signal another step towards resolving the conflict between the two countries. The talks will take place in Paris under the Normandy format with Germany and France after a three-year freeze.
The IMF announced on 7 December it had reached staff-level agreement (SLA) with the Ukrainian authorities on a new US$5.5bn three-year Extended Fund Facility (EFF). The size of the new facility (about 199% of quota) is in line with market expectations. However, the agreement is subject to Board approval and, crucially, upon the implementation of a set of prior actions. The announcement of the agreement came in a short statement after a phone call between the IMF's Managing Director Kristalina Georgieva and the Ukrainian President Volodymyr Zelensky.
The IMF agreement follows several weeks of negotiations (see Ukraine: What to expect from the IMF visit, dated 25 September). The IMF's statement announcing the agreement noted the impressive progress made by President Zelensky and his government over the past few months in advancing reforms and continuing with sound economic policies.
Agreement is subject to a number of unspecified prior actions, however. While the statement does not provide details, we think this will include actions on Privatbank, which is subject to a number of upcoming court cases (in Ukraine and elsewhere). The IMF's statement merely refers to "strengthening the rule of law, enhancing the integrity of the judiciary, and reducing the role of vested interests in the economy, and that it is paramount to safeguard the gains made in cleaning up the banking system and recover the large costs to the taxpayers from bank resolutions."
The agreement shows the IMF's faith in the Ukrainian authorities' commitment towards asset recovery in the banking sector and not reversing Privatbank's nationalistion.
The IMF agreement comes ahead of today’s meeting between Ukrainian President Volodymyr Zelensky and Russian counterpart Vladimir Putin in Paris. This is the first face-to-face meeting between the two, and talks will centre on resolving the dispute between the countries. Since Zelensky’s election win in April there have been some encouraging signs, including a prisoner swap in September, and in November the return of Ukrainian naval ships that Russia had seized a year ago.
But both leaders will be conscious of the acute challenges in: 1) reaching a mutually satisfactory resolution to the complicated conflict in Eastern Ukraine; and 2) presenting it in a way that is acceptable to their respective domestic audiences.
For more background on Privatbank and other possible prior actions, see Ukraine: Notes from the IMF meetings – discussions continue, dated 25 October.