September 27, 2019 / 5:29 AM / 18 days ago

In new Ukraine loan talks, IMF stresses central bank independence

KIEV (Reuters) - The International Monetary Fund has had productive discussions about assisting Ukraine with a new three-year loan program but stressed the need to safeguard central bank independence and financial stability, the IMF said on Friday.

FILE PHOTO: Ukraine's President Volodymyr Zelenskiy listens during a bilateral meeting with U.S. President Donald Trump on the sidelines of the 74th session of the United Nations General Assembly (UNGA) in New York City, New York, U.S., September 25, 2019. REUTERS/Jonathan Ernst/File Photo

As it left Ukraine after two weeks of meeting stakeholders, the IMF said discussions on the new program would continue in the coming weeks.

Ukraine’s new government wants to secure an IMF program to underpin economic stability and as a signal to investors of President Volodymyr Zelenskiy’s willingness to tackle reforms and fight corruption.

The exact size of the program has yet to be determined but could be around $5-6 billion over three years. It would replace a standby deal of $3.9 billion that expires next year.

But a series of incidents in recent weeks have clouded Ukraine’s investment climate. The central bank said last week reformers past and present at the regulator were being targeted after a former governor’s house was set ablaze.

The current Central Bank Governor Yakiv Smoliy pointedly posted a picture of himself meeting the IMF mission on Thursday, saying the IMF’s main “headache” would be protecting reformers.

The government has also sought to reassure the global lender that there would be no rollback of an IMF-backed decision in 2016 to nationalize PrivatBank, Ukraine’s largest lender, which was owned by one of the country’s most powerful tycoons.

“The mission has had productive discussions on policies for a new program these last two weeks, especially on fiscal and monetary policies, as well as key reform measures,” the IMF said in a statement.

“It also underscored the importance of central bank independence and safeguarding financial stability, as well as the need to make every effort to minimize the fiscal costs of bank resolutions.”

The central bank has felt pressure from various quarters, including a parliamentary committee that was launched to investigate its activities over the past five years, and the government has publicly called for it to lower interest rates.

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

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.

Last Friday at a meeting with the IMF, Zelenskiy promised to safeguard the central bank’s independence and supported a comprehensive investigation of abuses in the banking sector.

Kolomoisky is contesting PrivatBank’s nationalization in court and a hearing on one of the cases is due in Kiev on Oct. 1.

Additional reporting by Pavel Polityuk; Editing by Shri Navaratnam and Mark Potter

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