Ukraine - Economic Situation and Reforms June 2001

Performance since Independence Dramatic GDP decline in the last decade Significant decline in perceived quality of life Extremely low FDI per capita Close to 80% decline in fixed capital investments Widely viewed in the world as one of countries with the largest unrealized potential Capital flight, illiquid / inefficient capital market Corruption, in-fighting, unstable legal environment Over-regulation, bureaucracy

Turn around in 2000: A Country Portrait 6% GDP Growth 12.9% Industrial Output Growth 7.1% Agricultural Output Growth 8.5% Real Income Growth Population deposits in commercial banks up 45% Balanced budget External state debt decline of 17% Major reduction in barter Improved trade balance

Perspectives for 2001 Continued Economic Growth in 2001 Maintenance of sound fiscal policies Maintenance of sound monetary policies Favorable international trade Handling foreign debt International Support Programs

Economic Growth In spite of recent political uncertainties, economic growth in Ukraine has continued at a brisk pace 8.5% growth of real GDP year-on-year (January - April 2001) 10.8% growth of real GDP in April alone, - the highest monthly growth registered in Ukraine since independence 8.5% growth of industrial output from January to April 2001, 20.8% - in April alone

Fiscal Policies The government has continued to exhibit sound fiscal policies Surplus of $41.2million in consolidated budget (including privatisation receipts) (January - April 2001) $230 million in privatisation receipts, compared with a target of $360 million (January - May 2001) The government anticipates that government tax revenues during the rest of 2001 will meet or exceed planned levels (cancellation of the Kartoteka enterprises move from the shadow to the official economy )

Monetary Policies: Possible Risks Sound monetary policy during the rest of the year will depend on the success of the government in renewing IMF financing service of external debt without resorting to major purchases of foreign exchange Balance of payment may deteriorate due to accelerating growth of imports caused by the current high pace of GDP growth the need to made past payments due on imports of natural gas

Monetary Policies: Current Situation 6.2% increase in money supply (January - April 2001) Planned expansion for the entire year is 19% 3.2% increase in money supply (on April alone) From January to the end of April, the NBU purchased about $530 million of foreign exchange, $450 million of which was used to serve the country’s foreign debt Inflation in April 2001 accelerated to a monthly rate of 1.5% Despite political volatility, the local currency remained at the same level of 5.42 UAH/US$

Government Debt The only foreign balance-of-payment loan received by Ukraine up to now is a $60 million loan tranche from the World Bank under the Financial Sector Adjustment Loan $200 million reduction in Ukraine's external debt during the first five months of 2001 External debt service during 2001 would amount to about $1.8 billion, of which about $700 million is due to the IMF

Government Debt: Case of Delaying IMF Program Resumption Jeopardy of the Paris Club debt restructuring High level of external debt service Affecting monetary stability

International Trade and Capital Surplus of $816 million in foreign trade and services balance 15.8% growth of exports of goods and services 5.4% decline of imports of goods and services Major improvements in the reduction of barter trade in favor of cash payments 70.1% fall in export of goods via barter 81.1% fall in impost of goods via barter FDI to Ukraine totalled only $168 million, a decline of 5.6% year-on-year

The IMF and World Bank Program The IMF will consider renewing its loans to Ukraine during a visit to Kyiv planned from June 11 to 22, 2001 The World Bank has completed a mission to Ukraine and concluded that further negotiations are needed on its $750 million Programmatic Adjustment Loan The IMF and the World Bank are requiring the restructuring and eventual liquidation of the Ukraine Bank, with the prompt transfer of the deposits of the Ukraina Bank to other banks.