In our March 5 post, we argued that the Obama administration linking Ukraine aid to IMF reform was disingenuous and counterproductive. We were right: the legislation failed, congressional Republicans were angered, foreign governments were annoyed, and aid was delayed. All for what? Without IMF reform, Ukraine will still get every penny it would have gotten with IMF reform. Today’s Geo-Graphic shows this. And more…
The far left two bars (1 and 2) in the figure show that IMF “Rapid Financing Instrument” (RFI) aid was precluded by the American political wrangling, which held up the $1 billion in U.S. loan guarantees the IMF expected to accompany RFI aid. Bars 3 and 4 show the level of IMF aid Ukraine is entitled to over two years under “normal” access criteria with its current quota and what it would have been entitled to with a revised quota, post-IMF reform. The difference between these two numbers is meaningless – even if IMF reform were enacted, Ukraine would still need to qualify for “exceptional” access to receive the level of aid the IMF has agreed to provide over two years (bar 5).
Brazilian IMF executive director Paulo Nogueira Batista told the FT that he had wanted the Fund to approve a small bridging loan to Ukraine quickly, with negotiation of the bigger package coming later under less stress. “The experience we had in some other programmes – notably Greece – is that rushed decisions taken under economic and political pressure can lead to questionable results.” But, he explained, Ukraine’s short-term financing needs were greater than the IMF could have covered with a bridging loan. The U.S. loan guarantees could have covered the difference, but the Obama administration unwisely made them hostage to IMF reform.
The scorecard? No IMF reform; an unnecessarily rushed IMF aid package for Ukraine, but with slower aid dispersal; and ruffled feathers all around. This is an object lesson in how not to conduct economic diplomacy.
Financial Times: IMF Rushes Through $15 Billion Ukraine Bailout
IMF: Agreement with Ukraine on US$14-18 Billion Stand-By Arrangement
Wall Street Journal: IMF Reaches Deal to Provide Up to $18 Billion to Ukraine
The Hill: Reid Drops Ukraine Demands
Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”