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Thursday, January 1, 2015

Ukrainian parliament passes legislation to meet IMF austerity and other demands



The Ukrainian parliament yesterday passed a budget that is designed to balance the books and carry out a plan that is required and backed by the International Monetary Fund.

The plan for 2015 passed after a marathon debate in parliament that only ended after 4 a.m. President Poroshenko even made an unannounced visit to the parliament Sunday in order to convince disgruntled members of his coalition to support the legislation. There has been widespread opposition to the austerity measures as shown on the appended video. Even though there were almost 1,000 people outside the parliament with flares lit protesting against the austerity measures the vote was a lopsided 233 in favor to only 27 against. However before the vote the Prime MInister Arsenly Yatsenyuk promised that deputies would have an opportunity to change some of the most unpopular policies on February 15, but only on condition that any changes be approved by a visiting IMF team.

An IMF team is scheduled to send a mission to Ukraine on January 8th and will stay the rest of the month. Many legislators complained that the government did not provide them with details of the budget before calling the vote. Yulia Tymoshenko, a former prime minister but now part of the ruling coalition said: "After voting for laws that radically changed the revenues and expenditures parts, we do not have the draft budget in our hands." Included in the budget was $5.7 billion for defense. Poroshenko promised to boost defense spending from under 2 percent of GDP as it is now to 5 percent

Among the most unpopular austerity measures are a 10 percent increase in duties on alcohol and tobacco and many food items as well. Given the drastic drop in the value of the currency, the hryvnia, this will make imported goods quite expensive. Many other items will have a 5 percent increase in customs duty. To raise revenue, the budget includes provisions for the state to open up casinos and allow online gambling. The government has spent much of its foreign currency reserves in an attempt to stop the decline in value of the hryvnia. Reserves are at a 10-year low. There are only reserves sufficient to pay for two months of imports.

While defense spending will more than double social benefit payments will be increased only in line with inflation. Help in paying utility and other bills will be cut off entirely. The budget deficit is projected at 3.7 percent in 2015. Natalie Jaresko, the Finance Minister, who is an American citizen, said all measures had been agreed with by the IMF and that most measures would be repealed in 2016. The IMF approved a $17.1 two-year loan back in April. There were austerity conditions imposed as part of that loan that the parliament had agreed to back in March: It took two readings of the bill for 246 MPs out of 321 registered to approve the austerity measures outlined in the legislation dubbed “On prevention of financial catastrophe and creation of prerequisites for economic growth." The IMF had held back the last two payments until President Poroshenko came up with a restructuring plan that would stem the trend towards increasingly unsustainable debt. Even with the new measures rating agency Standard and Poor warned Ukraine may need another bailout of $15 billion next year to meet its debt obligations.

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