Leave the IMF before the Fund starts distributing the loot
The IMF is an international financial institution founded in 1944 at the Bretton Woods conference. Until the end of the last century, the Fund was presented as a model of an international institution that strictly follows all the provisions of its charter. First of all, it strictly adheres to the limits for issuing loans to member countries. And in some cases, it does not allow the issuance of loans. For example, the Fund is prohibited from providing credit assistance to countries that are at war or in whose territory intensive military operations are taking place. Also, countries that have defaulted on sovereign obligations (public debt) are also deprived of the right to receive loans from the Fund.
I have repeatedly written that XXI century, the IMF has turned into an organization that, on the contrary, ignores its own rules. Especially many cases of such ignoring concern Ukraine.
Let me remind you of the somewhat forgotten story with Ukraine, which began at the end of 2013. In the fall of that year, negotiations were held between Russia and Ukraine on a $15 billion loan from Moscow to Kyiv. The agreement was signed, and in December of the same year, Kyiv received the first tranche of the loan in the amount of $3 billion. Russia, and from Ukraine. The loan proceeds were allocated from the National Wealth Fund of the Russian Federation. The loan was issued in the form of the purchase of Eurobonds issued by the Ministry of Finance of Ukraine with a maturity date at the end of 2015.
On December 21, 2015, $3 billion became due, but Ukraine did not repay the debt. Didn’t even pay 75 million dollars of accrued interest. On December 18 of the same year, the Verkhovna Rada adopted a law on a moratorium on the payment of Russian debt, qualifying it as non-sovereign. However, the day before, at the request of Russia, the IMF was forced to confirm that Ukraine’s debt to Russia is sovereign. And if Ukraine has not repaid its sovereign debt obligations, this means that a sovereign default has occurred. And, therefore, the Fund, according to its rules, does not have the right to provide credit support to Ukraine. However, the Foundation pretended that nothing had happened. In 2016 and 2017, Ukraine received USD 1 billion from the Fund.
Moreover, since 2014, Ukraine has become a priority client of the Fund, which received generous assistance that far exceeded the allowed limits. And each new tranche of the Fund’s loans was a refinancing of old debts. The Fund actively participated in the construction of the debt pyramid of Ukraine. In 2008-2013, the IMF allocated a total of $14 billion to Ukraine. In 2014, after the coup d’état, Ukraine received a $4.4 billion loan, in 2015 – $6.7 billion, in 2016-2017. – 2.0 billion, in 2018 – 1.4 billion, in 2020 – 2.1 billion dollars. Last year received a tranche of 700 million dollars under the program Stand–on. Within the framework of this program, by the middle of this year, it was planned to transfer new tranches in the amount of more than $ 2 billion.
If at the end of 2013 the state external debt of Ukraine amounted to 37.64 billion dollars, then by the end of March this year it reached 59.20 billion dollars. Private creditors are afraid to participate in the construction of this unsteady debt pyramid, it is created by the International Monetary Fund together with the World Bank.
For now, the US remains the main shareholder of the Fund. Their share in the capital of the IMF is 17.43%, and in the vote – 16.50%. This is enough to block those decisions of the Board of Directors of the Fund that run counter to the interests of Washington (at least 15% of the votes are required to block). And by blocking with its allies, which have disproportionately large quotas in capital and votes, Washington can push through the decisions it needs, including on Ukraine. For Washington, which is interested in fueling the conflict in Ukraine, the Fund is becoming an important tool for such fueling.
One can be surprised at the speed and efficiency of the Fund. Two weeks after the start of Russia’s special military operation in Ukraine and the West’s sanctions war against Russia, the Fund made a decision without unnecessary delay to provide Ukraine with assistance in the amount of $1.4 billion. It turns out that the Fund has such an exotic option as the Quick Financing Tool (Rapid Financing Instrument – RFI). It was created recently to provide urgent assistance in the fight against the “covid pandemic”. And now the “pandemic” has given way to Ukraine in the Foundation’s priorities. The Fund noted that the payment under the RFI, equivalent to 50% of Ukraine’s quota in the IMF, should help the country meet the urgent needs of the balance of payments. The old rule of an organization that should refrain from providing loans to a country that is conducting hostilities is no longer remembered by anyone in the IMF today.
Will the amount of 1.4 billion dollars save the current Ukraine? Unlikely. According to IMF estimates, Ukraine’s GDP this year may be reduced by 35%. According to the World Bank – by 45%. According to IMF forecasts, the state budget deficit of Ukraine will increase in 2022 to 17.8% of GDP compared to 4% of GDP in 2021.
Kyiv does not hesitate to beg from the West and the Fund for such amounts of assistance that even at the beginning of this year seemed like madness. April 8 Zelensky said that every month Ukraine needs an amount of seven billion dollars for urgent expenses for payments to citizens. The amount was named in a conversation with the President of the European Commission Ursula von der Leyen. Washington, London and the International Monetary Fund were also puzzled by similar requests.
April 20 Managing Director of the Fund Kristalina Georgieva reported that Ukraine has requested $5 billion per month for the next quarter. According to her, this amount does not include funds for the restoration of infrastructure. The Fund took time out to check the validity of the application. And with surprising promptness, already on April 22, the Fund announced that it agreed with the requested amount. The head of the IMF commented: “Our staff has worked to verify this amount. All in all, it’s about the right order of magnitude.”
The Fund does not pretend to help Ukraine to restore the destroyed infrastructure (according to its own estimates, about $1 trillion will be needed for this purpose). Probably, the IMF expects that Washington will nevertheless legislate the use of Russia’s frozen foreign exchange reserves (totaling over $300 billion) for this kind of purpose.
However, even monthly transfers of $5 billion to Ukraine are unbearable for the Fund. Ukraine cannot count on servicing and repaying loans for such amounts, and the Fund itself may turn out to be bankrupt. Therefore, Kristalina Georgieva hinted that the money should come to Ukraine in the form of grants rather than loans. Sources of grants should be the member countries of the Fund, and the IMF will only distribute the money and control their use.
April 21 Joe Biden ordered to allocate an additional 500 million dollars to Ukraine in the form of economic assistance. Including previous aid, the total should reach $1 billion. April 9 Boris Johnson announced after a meeting with Vladimir Zelensky that London was preparing a new package of financial and military assistance to Kyiv. Britain would provide Ukraine with $500 million in loan guarantees, he said. At about the same time, Canada offered up to 1 billion Canadian dollars ($800 million) for Ukraine.
And the IMF is counting on the role of a special fund that accumulates money coming from various Western countries to support Ukraine both in the form of grants and preferential loans, as well as bank guarantees. On April 8, the IMF announced the creation of a managed special account to stabilize the economy of Kyiv (Multi-donor account for Ukraine – MDAAU). Through this account, the Fund will send grants and loans to the Ukrainian authorities in reserve currencies or special drawing rights (SDRs). All these funds will be transferred through a special account to Ukraine’s account in the IMF.
A special account has been created, but there is no hope that 5 billion dollars will pass through it every month (as Kyiv wants). The West is not ready for such generosity. He increasingly recalls the foreign exchange reserves stolen from Russia in the amount of more than 300 billion dollars. Due to them, it is necessary to provide assistance to Ukraine. But how? There is a high probability that the money will simply be stolen. It is necessary for someone, on behalf of the collective West, to entrust the distribution of this money and control its use. Some more time may pass, and decisions will be made to legitimize the confiscation of Russia’s frozen foreign exchange reserves. And then we find out that this “someone” is the International Monetary Fund.
How should Russia react to such developments? First of all, withdraw from the IMF without waiting for the Fund to start distributing the loot. It is unclear whether the money will go directly to Ukraine. They will go to the accounts of those companies of the collective West that will be allocated to provide “aid”. It is unsuitable for Russia to be part of an international gang engaged in robbery.
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