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Ukraine government, central bank show united front to ease IMF concerns

EconomyOct 03, 2019 12:51PM ET
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By Natalia Zinets

KIEV (Reuters) - Ukraine's Prime Minister on Thursday promised to respect the central bank's independence, seeking to ease concerns from the International Monetary Fund as it considers whether to give the government a new loan program worth around $5-6 billion.

Oleksiy Honcharuk and Central Bank Governor Yakiv Smoliy made a public show of unity as they sat side by side in a garden on the grounds of Kiev's main government building and signed an agreement on achieving sustainable growth.

Kiev's Western-backed leadership wants the IMF's financial support to keep the economy stable and signal to investors it is serious about reform and tackling corruption.

But concerns about the autonomy of the central bank, which has complained publicly in recent weeks about being subjected to pressure from various quarters, have weighed on Ukraine's prospects of receiving the loans.

"We very much respect the independence of the National Bank... because an independent regulator is the guarantee of the country's macroeconomic stability," Honcharuk said.

He also said the government would support the central bank's target to bring inflation down to 5% by the end of 2020, and wanted to cut the budget deficit to 1.5% of gross domestic product in 2024 from 2.3% for this year.

Smoliy said effective coordination of economic, fiscal and monetary policies was crucial to ensure price stability.

The central bank has said attempts were being made to intimidate it and halt the progress of certain reforms, describing itself as terrorized after the house of a former bank governor was set ablaze. [

During talks with an IMF mission in September about a new loan program, President Volodymyr Zelenskiy reassured the Fund that the central bank's independence would remain intact.

The government has also sought to reassure the IMF that there would be no rollback of an IMF-backed decision in 2016 to nationalize PrivatBank, Ukraine's largest lender, which was owned by businessman Ihor Kolomoisky.

Zelenskiy has long-standing business ties to Kolomoisky and repeatedly denied suggestions he would help Kolomoisky regain control of the lender, which was taken into state hands against Kolomoisky's wishes.

But last week Oleksandr Danylyuk, a top security official, left Zelenskiy's administration, citing concerns about the fate of PrivatBank and the central bank. Danylyuk had been finance minister at the time of PrivatBank's nationalization.

The central bank says a $5.6 billion hole had been left in PrivatBank's finances due to shady lending practices under Kolomoisky's ownership. Kolomoisky disputes that.

Zelenskiy met Kolomoisky publicly in September and days later Kolomoisky told reporters he saw scope for a compromise on PrivatBank. Any rollback of PrivatBank's nationalization would likely prompt the IMF to freeze aid.

Ukraine government, central bank show united front to ease IMF concerns
 

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