KIEV, July 20 – Ukraine must stop relying on external borrowing as looming debt crises in the European Union and in the United States may set off another wave of global financial turbulence, Prime Minister Mykola Azarov said Wednesday.
Azarov, addressing a government meeting, said the situation on world markets was “uneasy and alarming,” citing on-going debt talks in the U.S. and in Europe.
“The leading economic experts are warning about the possibility of the world economy plunging into a new global crisis,” Azarov said. “We don’t have the right to disregard such serious warnings. That’s why we have to prepare the country for any scenario.”
Ukraine, which heavily relies on exports of steel, was the country worst hit by the global financial crisis at the end of 2008 with the economy contracting 15% on the year in 2009.
Its currency, the hryvnia, was also the world’s worst performing currency in the period, losing almost a half of its value in the course of few months.
Ukraine’s economy expanded 4.4% on the year in January through June, and some analysts said it may even accelerate growth to 4.7% in 2011, due to the government’s heavy spending on infrastructure.
“Just in line with our plans we have been recovering to the pre-crisis level of manufacturing,” Azarov said. “We have to concentrate on quality and pace of economic growth.”
In the U.S., President Barack Obama has been holding difficult talks with U.S. lawmakers to try to agree on a plan that would increase the country’s debt ceiling before the August 2 deadline.
In Europe, talks have been underway on measures needed to avert a default on debts by Greece, and perhaps some other countries in the region.
When Ukraine suffered serious financial challenges in November 2008, the International Monetary Fund had moved quickly to bail the country out with a $12.5 billion two-year loan package.
Azarov’s government, a year ago, negotiated a $15.3 billion 2.5-year lending package from the IMF, and received about $3.2 billion so far. Another $3 billion had been suspended since April as Ukraine failed to implement some of the IMF’s demands, such as hiking gas prices for households.
“We have to restrict, or maybe even completely suspend foreign borrowing, and have to be extremely careful while issuing state guarantees” on commercial loans, Azarov said.
Azarov, unlike other members of the government, such deputy prime minister Serhiy Tyhypko, and the governor of the central bank, has been persistently advocating against foreign borrowing, including the borrowing from the IMF.
Azarov has been also refusing to hike gas prices for household consumers since April 1, insisting on a slower pace of such price hikes even as the measures have been jeopardizing borrowing from the IMF.
Meanwhile, Ukraine needs to repay about $11 billion in foreign debts this year, so the resumption of borrowing from the IMF was extremely important for the country, according to Tyhypko. (tl/ez)