Bloomberg News

Ukraine Parliament Backs Pension Law for Next IMF Tranche

July 08, 2011

(Updates bond yields in fifth paragraph, adds lawmaker’s comments in 11th and 12th.)

July 8 (Bloomberg) -- Ukraine’s parliament gave final approval to the government’s pension overhaul, moving the country closer to receiving additional payments from a $15.6 billion International Monetary Fund bailout.

Lawmakers backed the legislation early this morning after a nine-hour debate, with 248 members of the 450-seat legislature voting in favor. The measure, which raises the retirement age for women by five years to 60, takes effect Sept. 1.

The IMF approved Ukraine’s second rescue in three years after the government promised last year to narrow its budget deficit. While Ukraine received the first two installments totaling $3.4 billion, the third was delayed because the Cabinet had failed to increase the retirement age and raise household gas prices, two of its cost-cutting pledges.

“We expect Ukraine’s capital markets to react positively,” Kiev-based Dragon Capital said today in an e-mail to clients. The measure helps the “sustainability of Ukraine’s public finances and improves the prospects for disbursement of the next $1.5 billion tranche” of IMF aid.

Ukraine’s $500 million of dollar bonds due June 2012 rose for a second day, pushing the yield down 33 basis points, or 0.33 percentage point, to 3.96 percent as of 3 p.m. in Kiev. That’s the biggest drop since June 21, according to data compiled by Bloomberg.

Gas Talks

The former Soviet republic is trying to persuade the Washington-based IMF to disregard the gas-price requirement as the government seeks to renegotiate the terms of its import contract with Russia and because higher energy costs would spur inflation, Prime Minister Mykola Azarov said last month.

Ukrainian inflation accelerated to 11.9 percent in June, the fastest since December 2009, as utility and food costs increased, the state statistics office said yesterday. Finance Minister Fedir Yaroshenko and Coal & Energy Minister Yuriy Boyko travelled to Washington on June 14 to meet with IMF officials.

Ukraine, which depends on Russian gas for two-thirds of its energy needs, wants its neighbor to reduce the price to $240 per 1,000 cubic meters from $297 at present, President Viktor Yanukovych said May 24. The state energy company, NAK Naftogaz Ukrainy, has run a deficit because consumers pay less than the import price.

Yanukovych said today he will meet with Russian counterpart Dmitry Medvedev this month for further talks on gas supply and transit. He said he may also meet with Russian Prime Minister Vladimir Putin if Azarov able to do so because of his health.

‘Wrong Approach’

The IMF will “remain tough” on the gas-price increase, Dragon Capital said. The IMF program will stay mostly suspended until parliamentary elections in October 2012 because of “the election-induced lack of political will to proceed with fiscal consolidation,” according to the bank.

Oleh Liashko, deputy head of parliament’s budget committee, said Ukraine should reduce foreign debt rather than borrowing more from the IMF.

“Sustaining economic growth should be our goal, and to achieve that we have to liberalize the economy and create more jobs,” said Liashko, an opposition lawmaker who voted against the pension overhaul. “The government hopes it will help it in talks with the IMF for more loans. It’s the wrong approach.”

--With assistance from Jack Jordan in Moscow. Editors: Willy Morris, Andrew Langley

To contact the reporters on this story: Kateryna Choursina in Kiev at kchoursina@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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