The International Monetary Fund (IMF) has raised red flags on the risks for its financial position from its latest loan to Ukraine. The significant expansion of the Fund’s exposure to Ukraine approved by the executive board in March begs a central question about the size of the lending operation and the program of policies it supports: is the IMF equipped to take on the risk of such a large commitment of resources with questionable prospects for success to a country in conflict with questionable prospects for economic success? The immense risks to the success of the policy program, which are rooted in the still-simmering conflict in the east, doubts about the government’s ability to take on vested interests and impediments to a negotiated restructuring of private debt — and, therefore, to repayment of the IMF — exceed the IMF’s risk-bearing capacity. Bilateral creditors should be bearing a far greater share of the financial risk in Ukraine.
Susan Schadler is a CIGI Senior Fellow. She is a former deputy director of the International Monetary Fund’s European Department. Her research interests include the sovereign debt crisis, global capital flows, global financial institutions and growth models for emerging market economies.