Ukraine: New Government More Corrupt than the last

Christine Lagarde has said it is hard to see the programme continuing ‘without substantial effort’ to improve governance

Larry Elliott Economics editor

The International Monetary Fund has warned it will halt its $40bn (£28bn) bailout programme to Ukraine unless the conflict-torn eastern European country takes immediate action to tackle corruption.

The IMF’s managing director, Christine Lagarde, said on Wednesday that “without a substantial new effort” to improve governance, it was hard to see how the Washington-based organisation could continue to provide financial help.

“I am concerned about Ukraine’s slow progress in improving governance and fighting corruption, and reducing the influence of vested interests in policymaking,” Lagarde said.

“Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported programme can continue and be successful. Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history. It is vital that Ukraine’s leadership acts now to put the country back on a promising path of reform.”

Lagarde’s comments follow the resignation last week of Ukraine’s economic minister, Aivaras Abromavičius, after he accused a senior aide to the country’s president, Petro Poroshenko, of blocking anti-corruption reforms.

The IMF’s programme involves disbursing money in stages and has always been contingent on economic and political reforms. A third tranche of assistance has been held up since October because IMF officials have grown increasingly concerned that the financial assistance would be squandered or stolen by corrupt officials.

Latest figures, for the third quarter of 2015, show the Ukrainian economy contracting at an annual rate of more than 7%, and IMF support has been vital in preventing a bigger collapse in output and in brokering a debt relief deal with investors.

But interest rates on Ukrainian bonds have risen sharply and the currency, the hryvnia, was trading close to a one-year low against the US dollar.