August 1, 2012 / 12:11 AM / 7 years ago

UPDATE 2-IMF to visit Ukraine to assess budget-Ukraine official

By Doug Palmer

WASHINGTON, July 31 (Reuters) - An International Monetary Fund team will visit Ukraine in September to assess its budget plans as the cash-strapped country tries to persuade the lender to restart a $15 billion loan program, a top Ukrainian official said on Tuesday.

Valery Khoroshkovsky, first deputy prime minister, told Reuters through a translator he met with IMF Managing Director Christine Lagarde on Tuesday and reached “a general understanding that in September IMF representatives will come to Ukraine to assess our budget planning for 2013.”

The IMF froze a $15 billion loan program for Ukraine after the government failed to raise gas prices at home and carry out other unpopular reforms.

With a parliamentary election in October, the Kiev government has balked at taking the politically risky step of raising gas and heating prices for Ukrainian households by 30 to 50 percent, as pressed by the IMF.

Khoroshkovsky said he told Lagarde raising prices would create a social crisis unless Ukraine first developed a system to help the most vulnerable segments of its population cope.

He declined to characterize Lagarde’s response because of the confidential nature of the meeting, but said the IMF’s main concern was Ukraine’s macro-economic stability and the Kiev government recognizes it has more work to do on that.

“We understand that without resolving all key problems, the financing will not be unfrozen. So we agreed that we need to ensure macro-economic stability as the basic precondition and then we will work to resolve all other subjects,” he said.

Khoroshkovsky also met with U.S. Trade Representative Ron Kirk on Tuesday and they discussed steps the two countries could take to increase what he said was the “ridiculously small” level of trade between Ukraine and the United States.

Two-way trade totaled just $3.6 billion last year, roughly half of Ukraine’s trade with Belarus, he said.

The countries established a “Trade Experts Groups” to explore ways to boost bilateral trade and investment flows, according to a joint U.S.-Ukraine statement.

Khoroshkovsky said he also pressed the U.S. government to remove duties it imposed on Ukrainian steel and chemical products sometime before 2006.

Lifting the duties could boost Ukraine’s exports to the United States by $1 billion, he said.

The main justification at the time for the duties was low Ukrainian natural gas prices, which have more than doubled since, Khoroshkovsky said.

Khoroshkovsky said he did not expect talks on a free trade pact with the United States any time in the near future.

Earlier this month, Ukraine and the European Union finalized the text of a free trade agreement but implementation remains on hold because of political concerns.

The current government’s jailing of Ukrainian opposition leader Yulia Tymoshenko and some of her allies has strained ties with both the EU and the United States.

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