Next IMF aid tranche demands tough, Ukraine official warns

By Marc Jones LONDON (Reuters) - Ukraine could struggle to meet the International Monetary Fund's demands for its next aid tranche on time, one of the country's finance officials said, and voiced reservations about the appetite for its first major privatisation. Artem Shevalev, Ukraine's former deputy finance minister and now its representative at the European Bank for Reconstruction and Development, said the December timeframe for the next $1.3 billion (£1.06 billion) IMF loan was "extremely ambitious and challenging". The money is the next instalment of a $17.5 billion (£14.31 billion) aid-for-reforms programme Ukraine received after its economy was thrown into turmoil by the conflict with pro-Russian separatists. The previous $1 billion disbursement was heavily delayed after a number of agreed reforms, all centering on tackling corruption, were postponed or scaled down, compounding pressure on the government to deliver this time around. "A number of things (conditions for fourth IMF tranche) that are in there are pretty tough," Shevalev told Reuters. "Banking sector clean-up for one, submission of the electronic declarations (of assets) by high officials, land reform, pension reform and of course a very important one, privatisations." If Kiev does manage to all of these it would mean the country had probably reached the point where it had been permanently changed for the better, Shevalev added, but for now the challenges remain. INTERNATIONAL PARTNERS Questions still hang over Ukraine's largest commercial bank, PrivatBank, while a move to make top government officials declare their whole families' assets called a "structural benchmark" by the IMF, faces resistance. Shevalev said the privatisation saga of state-owned fertiliser plant OPZ near the Black Sea in Odessa was also an issue, although last week's move by the government to slash its auction price in half could help progress. It is due to be the first major privatisation since a 2014 uprising brought in a pro-Western leadership in Ukraine and is seen as a test of the government's promise to implement economic reforms and tackle corruption. "OPZ (Odessa fertiliser plant) should be privatised by the end of the year but so far the government has not been as forthcoming and proactive in this process as international partners expected." "The original valuation was a major issue and the other big question is what you do with the debt. It becomes a question of political will as to how you can provide incoming investors with some form of indemnification against this toxic debt." The European Bank for Reconstruction and Development (EBRD), Shevalev's current base, came under fire too. It lent over 1 billion euros in Ukraine after Russia annexed Crimea in 2014, but the amounts are expected to be half of that this year. "In terms of EBRD investment the numbers, this year will be rather unimpressive," he said. "The EBRD management cites political instability at the beginning of the year as one of the major factors in this drop, but I argue that the new government has been in place since late April so there has been lots of time," he said. A number of previously approved public sector projects have also not yet seen the money disbursed though a lack of lending to the private sector was the real worry, he said. "It is true that the quality of projects in Ukraine is challenging but sometimes I just think the EBRD should take a further step in terms of the 'out of the box' approach," he said. (Reporting by Marc Jones; Editing by Alison Williams)