Blue &Yellow: Politics and Economics in Ukraine

Yushchenko and Tymoshenko managed to set aside most of their differences and dispatched a letter of intent to the IMF on March 2, in which they pledged to revise the budget and abstain from printing money to cover the deficit. Tymoshenko also agreed not to insist on Stelmakh's dismissal (see EDM, March 4). The Constitutional Court put an end to the uncertainty over the status of Stelmakh, whom parliament voted to dismiss in January at Tymoshenko's behest. The court ruled that parliament could not dismiss the NBU head without the president's consent (Ukrainski Novyny, March 3).

The letter from Yushchenko and Tymoshenko did not convince the IMF, so Tymoshenko had to make further concessions at a government meeting on March 11. The government agreed to ask parliament to cancel the provisions in the state budget law that had restricted the NBU's right to decide which banks to refinance and with what amounts. The NBU's obligation to buy government bonds from banks at a nominal value for which it would have to print more money also had to be dropped (Interfax-Ukraine, March 11). Parliament passed these measures on March 17. Unlike most developed Western economies, where inflation is low so that printing more money in the current crisis can be beneficial, this would arguably have a negative effect on Ukraine, which had an inflation rate of more than 22 percent in 2008.

The government also reversed its decision authorizing First Deputy Prime Minister Oleksandr Turchynov, Tymoshenko's faithful ally since the 1990s, to advise the NBU on refinancing banks (Ukrainska Pravda, March 11). At the same time, the World Bank and the IMF were invited to appoint one representative each to sit as non-voting members on the government council for the recapitalization of ailing banks. The IMF representative in Ukraine, Max Alier, promised that IMF experts would offer the best advice, based on the experience of countries that have already faced banking crises (Kommersant-Ukraine, March 12).--From EDM Issue 6 Volume 52, "Tymoshenko accepts IMF's conditions on Central Bank"