IMF responds to allegations about Ukraine’s use of international reserves, outlines remedial actions

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In a news brief dated March 14, the IMF noted that various allegations have been made about the use of Ukraine’s foreign exchange reserves held by the National Bank of Ukraine (NBU) in 1996–98, before the approval of the current arrangement under the Extended Fund Facility (EFF) on September 4, 1998. Excerpts from News Brief No. 00/15 follow. The full text is available on the IMF’s website (www.imf.org).

At the request of the IMF staff, Pricewaterhouse-Coopers (PwC) has been commissioned by the NBU to carry out a special examination of the transactions affecting the reserves in 1997–98. When completed, the results will be published. In the meantime, this statement sets out the IMF staff’s current understanding of the transactions to which the allegations relate. It explains when the staff learned about the transactions and the remedial actions that have been taken.

In summary, on the basis of the information currently available to IMF staff, it appears that a number of transactions in 1996–98 gave the impression that Ukraine’s reserves were larger than was actually the case. Relatively few of these transactions appear to have resulted in Ukraine’s receiving disbursements that it would not otherwise have been entitled to receive. Pending the final results of PwC’s special examination, the view of the IMF staff is that Ukraine appears to have received disbursements from the IMF on three occasions in late 1997 and early 1998 that it would not have done if the true state of Ukraine’s reserves had been known at the time. The IMF will review this thoroughly when the results of the special examination are available. Since the approval of the subsequent arrangement for Ukraine under the EFF in September 1998, new safeguards have been put in place and there has been no evidence of similar problems.

In recent months, the IMF has been considering ways to strengthen safeguards on the use of IMF resources and also how best to address cases where national authorities misreport information to the IMF. It is anticipated that further safeguards will be adopted after the IMF Board has discussed this issue in the coming weeks.

Remedial actions

Since it became clear to IMF staff in August 1998 that part of the NBU’s reserves were tied up, a number of actions have been taken under the current EFF arrangement to correct the situation. First, the NBU ensured that all its liquid reserves were held in first-rank international...