Can The IMF Save Ukraine?

Mar 13 2014 @ 12:57pm

Daniel Runde urges Congress to approve IMF quota reform, which would open up more money to stabilize Ukraine:

The United States needs to lead the response to the Ukraine crisis because Europe is divided over Ukraine. For the United States to lead, we need IMF quota reform to have the credibility to ride herd on the IMF package. The quota reform will double the “quick money” that is available to Ukraine to $1 billion and double the IMF’s stockpile of money for crises to over $700 billion.

As of today, Ukraine has limited hard currency reserves, and they are shrinking. It has a banking crisis and has limited the amounts of money that depositors can withdraw. The country is on the brink of financial collapse and a financial collapse will open it up to further radicalization and instability — and a weaker Ukraine is an even easier victim for Russia.

Peter Boone and Simon Johnson throw cold water on the idea that financial aid can solve the country’s problems:

This fight over Ukraine between Russia and the West has been going on since the 1990s. Each time the Ukrainian government changes, one side rushes to the fore, offering funds and support. The great problem for Ukraine, and those civil society-oriented individuals that fought for the overthrow of Viktor Yanukovych, is that too much foreign support is forthcoming, making it too tempting for governments to switch allegiances, and extort funds from each side.

Any I.M.F. program will undoubtedly fail again unless this chronic struggle between Russia and the West over Ukraine is stopped. … The I.M.F.’s own analysis implies that large amounts of foreign funds, public or private, are not any kind of solution in this situation. But for political reasons the I.M.F. is likely to ignore the sensible conclusions drawn from its own experience.

Veronique de Rugy, no fan of the IMF to begin with, opposes quota reform:

[I]t would double the funds that the IMF is allowed to loan to any country it wishes, without much limit. For the United States, it means a 100 percent increase in its contribution to the IMF from its current level, $63 billion. According to the Congressional Research Service, “this would be the largest proportional quota increase in the history of the IMF.”