Ukraine passes a Potemkin budget

“Ukrainian Premier Arseni Yatsenyuk rejoices over the passage of the budget as the Finance Minister from the US, Natalie Jaresko, looks on.”

German Economic News, December 25, 2015

Translated from German by Tom Winter, December 30, 2015

Original headline: Ukraine votes up a budget to avoid bankruptcy

The Kiev government has taped up a budget for 2016 and has gotten it passed by the Parliament. Realistically, it is no budget. But it opens the way for new loans from the IMF and the European taxpayers.

The Ukrainian parliament has created the conditions for more loans from the International Monetary Fund. On the night of Friday, the deputies approved the budget for 2016. The Fund had made this a condition for the next, third, credit tranche amounting to 1.7 billion dollars. 

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Previously several legislative changes were adopted. The income tax was lowered to 22 percent. The taxes on tobacco, petrol, and alcohol were increased dramatically. Some taxes introduced a year ago, which were expected to increase the new state budget revenues, were abolished due to lack of success.

Deputies approved the law well after midnight, because otherwise the next credit tranche of the IMF would be at risk. Whether the now adopted laws will meet the requirements of the creditors, is still unclear. Possibly Parliament will have to meet again before the new year to adjust the laws.

Years of mismanagement, corruption and conflict with pro-Russian separatists in the east of the country have brought the Ukraine to the brink of national bankruptcy. The IMF requires Ukraine to adopt a budget in accordance with the guidelines of the Fund. First, it was unclear whether the government in Kiev met this requirement with the budget for 2016. At least as provided by the IMF plan, it looks to reduce the debt to 3.7 percent of economic output. Ukraine has already, this year alone, received nearly ten billion dollars from the IMF and other international donors for the improvement of their finances.

But even given the programs financed by the IMF and the European taxpayers little has actually improved: The corruption is still serious. At last, US Vice President Joe Biden came and demanded a reversal.

As a rule, loans and grants from abroad to already corrupt states mean that the local networks have to earn the funding and adapt their business model to reality so that they can direct the funds from abroad into their channels.

The IMF insists that the debt of Ukraine stay under 3.7 percent of annual GDP. With cosmetics, this is probably possible, realistically, this value can not be achieved in the face of economic disaster.

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