Letter of Intent
Kyiv, April 22, 2014
Ms. Christine Lagarde
International Monetary Fund
Washington DC, 20431
Dear Ms. Lagarde:
1. In recent years, unsustainable policies and weak governance in Ukraine have led to economic stagnation and excessive fiscal and external imbalances. In early 2014, political turbulence and deteriorating consumer and investor confidence drove bank deposit outflows, a collapse of fiscal revenues, a depletion of international reserves, and rapid depreciation of the hryvnia. Recent emergency measures under the new government have led to a degree of stability, but the situation remains fragile. Substantial repayments of domestic and external debt over the next two years together with sizeable gas import payments and other pressures will impose a heavy burden on the economy and public finances.
2. The Ukrainian government is committed to a comprehensive economic reform program to restore macroeconomic stability, strengthen economic governance and transparency, and lay the foundation for robust and balanced economic growth. A sequence of near- and medium-term reforms will aim at achieving external balance, strengthening the financial sector, restoring sound public finances, rationalizing the energy sector, and improving the business environment. A number
of key measures will be put in place immediately to demonstrate our commitment to program policies and objectives. These prior actions, which are described below and appear in Table 1, will address long-standing issues in monetary and exchange rate policy, the financial sector, fiscal policy, and governance. In this context, we will take steps to cushion the negative impact of reforms on the most vulnerable groups of our society. The program of the Government, that envisages the cooperation with the IMF, is supported by all major political parties.
3. We request the support of the IMF for the ambitious reforms needed to achieve our program objectives. Based on our estimated balance of payments needs, we request the approval of a 24-month Stand-By Arrangement (SBA) in the amount of SDR 10,976 million (800 percent of quota). We need financial support under the proposed SBA not only to address current account deficit and pressures on capital account but also to build up reserves. The first disbursement will be SDR 2,058 million, of which the domestic currency counterpart of Fund purchases in the amount of SDR 1,290 million will be used to finance the budget deficit.
4. We regard the policies set forth in the attached Memorandum of Economic and Financial Policies (MEFP) as adequate to achieve program objectives but will take any additional measures that may become appropriate for this purpose. We will consult with the IMF on the adoption of such additional measures in advance of revisions to the policies contained in the MEFP, in accordance with the Fund’s policies on such consultation. We will provide the Fund with the information it requests for monitoring progress during program implementation. We will also consult the Fund on our economic policies after the expiration of the arrangement, in line with Fund policies on such consultations, while we have outstanding purchases in the upper credit tranches. Reaffirming commitment to our policy of transparency, we consent to the IMF’s publication of this letter, the attached MEFP, the Technical Memorandum of Understanding (TMU), and the accompanying Executive Board documents.Yours sincerely,
Minister of Finance