RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/BOP/R/93 
29 June 2009 
 
 (09-3159) 
Committee on Balance-of-Payments Restrictions  
  
 
REPORT ON THE CONSULTATIONS WITH UKRAINE 
 
 1. The Committee held consultations with Ukraine on 23 and 25 June 2009, under the 
Chairmanship of Ambassador Darlington Mwape (Zam bia), in accordance with the terms of reference 
of Article XII of the GATT 1994 and the Unders tanding on the Balance-of-Payments Provisions of 
the GATT 1994.  The International Monetary Fund was invited to participate in the consultations in 
accordance with Article XV:2 of GATT 1994. 
2. The Committee had before it the following documents: 
 WT/BOP/S/16  Background Paper prepared by the Secretariat 
 WT/BOP/N/66  Notification from Ukraine 
 WT/BOP/N/68  Notification from Ukraine  Ukraine Basic Document, Economic Indicators, and Press Release from the 
National Bank of Ukraine  
 Ukraine  Statement by the IMF Representative at the 2009 Consultation of the 
WTO Committee on Balance of Paym ents Restrictions, 23 and 
25 June 2009 
 A. O
PENING STATEMENT  
3. The opening statement by the representativ e of Ukraine is attached (Annex 1). 
B. STATEMENT BY THE IMF 
4. The statement by the representative of the Inte rnational Monetary Fund is attached (Annex 2). 
C. DISCUSSION IN THE COMMITTEE  
5. Several Members commented on the late arriva l of Ukraine's background document and urged 
Members to ensure that documents were submitted  in a timely manner to allow sufficient time to 
study them.  One Member reserved its rights to co mment or ask questions on Ukraine's background 
document at a later stage. 
(i) Balance-of-payments position a nd prospects; alternative measures to restore equilibrium 
6. The Committee recognized that Ukraine's economy ha d been hit by a sharp deterioration in its 
terms of trade in the summer of 2008 followed by a ra pid reversal of capital flows.  Between October 
2008 and March 2009, Ukraine had lost US$14 billion in foreign reserves.  However, since the last 
quarter of 2008 there had been a significant depreciation of the hryvnia which had helped 
considerably to reverse the increase in the current account deficit.  The continued decline in imports 
following the sharp economic downturn had reinfor ced the improvement in Ukraine's external 
accounts.  Ukraine's decision to enter into a Stand-By Arrangement with the IMF had provided a boost to confidence and pressure on Ukraine's current and capital account had thus eased.   WT/BOP/R/93 
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7. Several Members said that Ukraine's economic indicators had improved in recent months – 
reserve levels had been bolstered by the IMF's di sbursement and were projected to remain at a 
comfortable level in 2009 – and the IMF was now forecasting a modest current account surplus of 
0.5% of GDP in 2009 compared to a deficit in 200 8.  A surplus of 1.2% of GDP was forecast for 
Ukraine in 2010.  One Member said that follo wing the First Review of the IMF's Stand-By 
Arrangement in May 2009, the IMF had concluded th at Ukraine's BOP situa tion had developed better 
than expected and thus there was less need for external financing than initially foreseen.  Ukraine's 
balance of payments situation had stabilized and was less precarious than at the time the BOP measures had been adopted.  Thus, Members were of the view that Ukraine was not facing an 
"imminent threat" of a serious decline in its monetary reserves which was one of the possible 
conditions of GATT Article XII to warrant the introd uction of import restrictions for BOP purposes.   
8. Some Members said that multilateral lende rs including the IMF had made available 
considerable external financial resources in orde r to restore confidence and financial and economic 
stability.  Ukraine now had the necessary resources to  back up its banking sector.  Ukraine itself had 
recognized that in order to address balance of pa yments difficulties on a more sustainable basis the 
focus should not be on trade restrictions, but rath er on a mix of fiscal, monetary and exchange rate 
policies and on external financing.  Indeed Ukra ine was already using such a policy mix.  One 
Member pointed out that Ukraine had taken the positive  step of passing legislation to reduce the fiscal 
deficit and had demonstrated progr ess on bank capitalization in May.   
9. One Member commended Ukraine for the contin ued maintenance of its relatively liberal 
trading regime and for the difficult policy decisi ons it had undertaken to alleviate pressures on its 
balance of payments.  Nonetheless there was no justif ication for the import restrictions taken.  The 
Member emphasized that it was crucial that WTO Members resist the temptation to implement protectionist measures.  The same Member, while r ecognizing that there were considerable risks to a 
resurgence in capital account pressu res in Ukraine due to various factors such as its political 
environment, a widening fiscal gap and the lik elihood of bank and other corporate failures, 
emphasized that trade restrictions were  not a solution to those problems. 
10. One Member expressed solidarity and understanding for Ukraine's difficult economic 
situation.  While it was evident that Ukraine was faced with a serious BOP situation, it had used 
resources from the IMF and had adopted exchange ra te policies and fiscal measures to bring about a 
solution. 
11. One Member said that trade restrictions should be used only when strictly necessary as a last 
resort and not as a weapon of first choice;  by introducing trade restrictive measures Ukraine had 
shifted part of the burden of redressing its situation to the external account with clear repercussions on 
its trading partners through decreased exports.  
12. Some Members urged Ukraine to remove the me asures immediately.  Other Members argued 
that the measures should be removed earlier than scheduled or at the latest by September 2009.  Some 
Members indicated their concern about the systemic implication of considering the measures and their 
distortive application under the BOP provisions of the WTO and stressed the need to ensure that 
WTO rules are applied correctly.   
(ii) System and methods of restrictions;  effects of restrictions 
13. Several Members pointed out that the measures were not applied to the general level of 
imports but were restricted to only two product groups, refrigerators and motor vehicles, which 
accounted for 0.6% of Ukraine's tariff lines and 7.3% of its 2008 imports.  Such a targeted application 
of import restrictions was difficult to justify and app eared to be a form of industrial policy aimed at 
protecting producers of refrigerators and motor vehicl es.  Rather than alleviating any BOP difficulties 
such measures would result in trade distortions.  Some Members pointed out that such targeted  WT/BOP/R/93 
 Page 3 
 
 
application was not in line with Article XII of  the GATT and the Understanding on Balance-of 
Payments Provisions.  One Member considered that targeting two product groups which were 
produced domestically and exported was the exact opposite of what the WTO rules require.   
14. One Member asked why Ukraine continued to impose import restrictions on refrigerators 
which represented a small portion of total imports a nd was a small contributor to its trade deficit. 
15. Several Members raised concerns about the dram atic decline in their exports to Ukraine and 
to the fact that the measures disproportionally aff ected certain trading partners.  The exclusion of 
preferential trading partners meant that the effect  on some Members’ exports  and commercial interests 
was even larger.   
16. Members expressed concern about Ukraine's excl usion of its preferential partners from the 
application of measures.  Russia and Belarus a ccounted for 32% of Ukraine's total imports of 
refrigerators, while Russia and Uzbeki stan accounted for 10.8% of its total imports of motor vehicles.  
Their exclusion reduced the scope of application the measures to Ukraine's other trading partners, and 
to US$5.5 billion of 2008 imports, or only 6.3% of  Ukraine's total imports.  Members asked Ukraine 
to provide the reasons why imports from preferentia l partners had been excluded from the application 
of the measures.  In their view this would hamper furt her the intended effect of the restrictions to help 
restore BOP equilibrium.  For one Member, the fact that Ukraine had exempted its preferential trading 
partners from the measures was a clear demonstration that the measures had not been taken to address 
BOP problems as consumption of the products in question would shift from MFN importing partners 
to preferential trading partners, thus defeating th eir purpose.  Some Members pointed out that the 
exclusion of preferential trading partners from the application of the measures was not permitted 
under Article XII of the GATT or the Understanding.  The exclusion of preferential trading partners 
was also of significant systemic concern for several Members. 
17. Ukraine's rejection of the use of anti-dumping or safeguard measures as an alternative to the 
BOP restrictions due to the fact that such measu res required lengthy investigation was a source of 
concern to some Members and indicative of the protectionist intent of the measures. 
18. One Member underlined the need to ensure th at the measures implemented by Ukraine did 
not set an example for other countries that may expe rience BOP difficulties in the future.  The intent 
of BOP measures in the WTO was to allow countries to  apply price-based restrictions to the general 
level of imports to alleviate BOP difficulties without distorting trade. 
19. Some Members were of the view that the exp ected reduction in trade due to the 13% import 
surcharge would not have the desired effect of  helping restore BOP equilibrium.  One Member 
pointed out that Ukraine's IMF programme prohib ited the imposition or intensification of import 
restrictions for BOP reasons, and so the restricti ons themselves could be seen as jeopardizing future 
IMF disbursements and increase the risks of in tensifying capital account pressures.  The current 
measures could jeopardise Ukraine' s international borrowing prospects by violating the terms of its 
IMF Stand-By Arrangement.  Ukraine's current account  was already moving back into balance due to 
currency depreciation and economic  slowdown making the import restrictions unnecessary.  The same 
Member pointed out that the primary source of th e BOP problem at this stage was the capital account, 
not the current account.   
D. REPLIES BY THE REPRESENTATIVE OF UKRAINE  
20. The representative of Ukraine stated that the measures had been implemented when the BOP 
situation in Ukraine was in bad shape with huge ou tflows in the financial account and the current 
account in negative balance.  He acknowledged that  the situation had improved significantly, but only 
recently in May and June.  Ukraine expected the huge  outflows in the financial account to continue in WT/BOP/R/93 
Page 4  
 
2009 due to global financial deleveraging, high sche duled payments on its external debt and low 
levels of projected FDI inflows.   
21. In response to the comments made about the c hoice of measures taken, Ukraine said that the 
BOP measures were not a weapon of first choice.  It had been a difficult decision to implement the 
measures, which had initially been applied to a br oader range of goods covering a larger share of 
Ukraine’s trade, most of which had subsequently been removed.  Essential products, such as energy, 
were excluded from the application of the measures.  He added that the measures did not affect trade with developing countries and LDCs.   
22. He explained that the sharp decline in imports of cars and refrigerators had come about due to 
the sharp decrease in consumption, not as a result of trade restrictions.  For instance, despite being 
subject to a 25% import duty until mid 2008, imports  of cars had continued to increase;  imports of 
cars in the first quarter of 2009 had dropped to less than a quarter of the import volume registered during the third quarter of 2008.  Instead of facing a 25% import duty, cars were now subject to a 10% 
import duty and a 13% surcharge, resulting in a 23% tariff.  Thus the decline in imports of cars was due to much lower consumption in Ukraine, not the imposition of the import surcharge.   
23. In response to concerns that Ukraine was usi ng BOP measures as a form of industrial policy, 
he said that domestic production of cars in Ukrain e had decreased.  Production of cars in April 2009 
was just slightly more than a tenth of the volum e produced in mid 2008.  He acknowledged that the 
government's response to growing demand and c onsumption of these goods by implementing BOP 
provisions, which it had postponed until the end of th e first quarter of 2009, was probably too late. 
24. In response to comments about the application of  safeguard measures, he said that a safeguard 
investigation would have taken time and might have had even greater trade restrictive consequences.   
25. Regarding the application of measures with pr eferential partners, he said that Ukraine's 
bilateral agreements had provisions concerning bala nce of payments and contained commitments not 
to apply additional restrictive measures against preferential trading partners.  In his opinion, 
Article XII and the Understanding on Balance-of-Payments Provisions did not make a clear case that 
such measures should be applied on an MFN basis.  In addition, he pointed out that Russia and 
Belarus were not WTO Members.  It would take tim e to amend and ratify the preferential agreements 
and the measures had been applied temporarily for six months only and would not be extended.  As 
regards imports of cars, he added that the shar e of CIS countries in Ukraine's total imports had 
declined from about 30% of all such imports to abou t 10% over the past two years.  So the impact of 
trade with these countries in those specific products was very small. 
26. Concerning the application of the measures to only two products rather than a more general 
application, he said that if measures had been applie d to the general level of imports they would have 
been more restrictive to trade.  Ukraine was working to limit the a pplication of existing measures and 
he reiterated Ukraine’s intention to eliminate the remaining measures as soon as possible.   
E. C
ONCLUSIONS  
27. The Committee noted with appreciation Ukraine' s efforts in providing a notification to the 
Committee, while regretting the very late submissi on of the Basic Document for the consultations.  
28. The Committee took note of Ukraine's statement that  Ukraine had resorted to this measure at 
the most critical moment for its balance of paymen ts in the situation of rapidly aggravating world 
economic crisis.  The Committee recognized that Ukraine's balance-of-payments situation had 
deteriorated during 2008 due to a combination of ex ternal developments and domestic policy choices.  
The balance-of-payments situation had, however, improved more recently, reflecting the depreciation 
of the Hryvnia, measures of fiscal consolidation,  and the receipt of external financing from the  WT/BOP/R/93 
 Page 5 
 
 
international community via the IMF Stand-By Arra ngement.  Therefore, Members considered that 
currently Ukraine's external financial position and its balance-of-payments are not under an imminent 
threat. 
29. Members also recalled that Art XII of GATT 1994 paragraph 3(a) states that Members 
"undertake, in carrying out their domestic policies, to  pay due regard to the need for maintaining or 
restoring equilibrium in their balance of payments  on a sound and lasting basis and to the desirability 
of avoiding an uneconomic employme nt of productive resources.  They recognize that, in order to 
achieve these ends, it is desirable so far as possi ble to adopt measures which expand rather than 
contract international trade."   
30.  Members recalled that, whenever  justified under Article XII of GATT 1994, trade restrictive 
measures applied for balance-of-payments purposes  should be applied in a way as to avoid any 
undesirable protective effect.  Members noted that Article XII calls on parties applying restrictions for balance-of-payments purposes to avoid unnecessary dama ge to the commercial or economic interest 
of any other Member.  Members recalled that  the Understanding on the balance-of-payments 
provisions of GATT 1994 provides that such measur es may only be applied to control the general 
level of imports, with only certain essential products  being excluded from the application of across the 
board surcharges.  Members also noted that the Understanding on the balance-of-payments provisions 
of GATT 1994 provides that essential products shall be understood to mean products which meet 
basic consumption needs or which contribute to th e Member's effort to improve its balance-of-
payments situation, such as capital goods or inputs needed for production. 
31. The Committee noted that the trade measures cu rrently applied by Ukraine cover only about 
0.6 percent of all tariff lines, affecting a volume of trade equivalent to some 7.3 percent of its total 
2008 c.i.f. imports.  Ukraine's measures, therefore, do not, in the view of the Committee, control the 
general level of its imports, and they  can not be  expected to assist in redressing the balance-of-
payments situation.  Furthermore, the Committee noted that Ukraine's preferential partners were 
exempted from the trade measures, whereas no a llowance for any such exemption is made in 
Article XII, the Understanding, or Article XXIV. 
32. The Committee concluded that the current measur es are not justified by Ukraine's current 
balance-of-payments situation, in light of the re quirements set forth in Article XII of GATT 1994 and 
are not applied in a manner consistent with the re quirements set forth in Article XII of GATT 1994 
and the Understanding.  Accordingly, the Co mmittee took note of Ukraine's commitments to 
eliminate the measures no later than 7 September as se t out by the legislation, to firmly endeavour to 
eliminate them by mid July, and to immediately notify to the Committee the action taken.  The 
Committee will then convene to consider the action taken. 
33. On the basis of this request, and in the light of the commitments taken by Ukraine reflected 
above, the Committee agreed to conclude the consultations. 
34. While the measures described remain in force, Members reserve their rights under GATT 
1994. 
 WT/BOP/R/93 
Page 6  
 
ANNEX 1 
 
Opening statement of the representative of Ukraine
 
Mr Chairman,  Let me begin by thanking you and the distingui shed delegates of the WTO Member countries 
for gathering here at this meeting of the Ba lance-of-Payments Committee to hold consultations 
concerning the measures adopted by Ukraine to safeguard its balance of payments. 
 My sincere thanks also go to the Secretaria t for the complete and well-founded supporting 
and background document that it prepared for the benefit of all Members. 
 I would also like to thank the International M onetary Fund for an objective evaluation of the 
external position of the Ukrainian economy. 
Mr Chairman, 
On 7 March 2009, Ukraine established a balance- of-payments safeguard.  The legal basis for 
the introduction of measures on imports for the balance-of-payments purposes (a temporary surcharge) is the Law of Ukraine "On Introducing Ch anges to Some Laws of Ukraine to Improve the 
Balance-of-Payments of Ukraine in Connection with the Global Financial Crisis" of 04.02.2009 
No. 923-VI.  
Pursuant to the above-mentioned Law Ukraine in troduced a temporary surcharge up to 13 per 
cent of the customs value of goods brought into the customs territory of Ukraine as imports, except 
for some tariff lines.  
Complying with the transparency princi ple Ukraine duly notified the measure under 
paragraph 9 of the Understa nding on Balance-of-Payments Provisions of the GATT 1994. 
Besides pursuant to paragraph 11 of the Unde rstanding on the Balance-of-Payment Provisions 
of the GATT 1994 Ukraine has prepared the document, which contains an overview of the balance-of-
payments situation and prospects. It includes a c onsideration of the internal and external factors 
having a bearing on the balance-of-payments situ ation and the domestic policy measures taken in 
order to restore equilibrium on a sound and lasting basis.  
The document contains a full description of the restrictions applied for balance-of-payments 
purposes, their legal basis and steps taken to reduce incidental protective effects;  measures taken to 
liberalize import restrictions.  The document e xplains how the measure was relaxed and gives 
indication of a plan of Ukrainian authorities fo r the elimination of remaining restrictions.   
The measure was introduced in the situation of significant reduction in foreign currency 
reserves only with a view to restore the balance-of-payments. 
We have looked into the possibilities of Articl es XII to XIV of the GATT that elaborated a 
complex rules to govern the use of trade restricti ons for balance of paymen ts purposes.  We gave a 
great deal of thought to Article XII:1 which stated the basic right of any Member to impose quantitative restrictions in derogation from Article XI  "in order to safeguard its external financial 
position and its balance of payments" and to Article  XII:2 which established that such restrictions 
shall be limited to what is "necessary to forestall th e imminent threat of, or to stop, a serious decline 
in monetary reserves".   WT/BOP/R/93 
 Page 7 
 
 
 Ukraine gave preference to trade measures of a price-based nature, such as tariff surcharge 
with a view to their elimination as soon as possible, despite other possibilities provided by the BoP articles of GATT.  
The temporary import surcharge is instituted for a term of up to six calendar months 
following the month, in which it took effect.  Howeve r, based on assessment of the state and prospects 
of the balance-of-payments on 18 March 2009 the Gove rnment of Ukraine eliminated the 13% import 
surcharge measures, except for imports classifi ed under UKTZED codes 8418 and 8703 (refrigerators 
and passenger cars). 
 According to the Law of Ukraine "On Introduc ing Changes to Some Laws of Ukraine to 
Improve the Balance of Payments of Ukraine in  Connection with the Global Financial Crisis" 
No. 923-VI, the surcharge on these items is envisag ed to be valid for six months thus until 
7 September.  
Mr Chairman,  With your permission, now I will provide a m acroeconomic justification of the measures in 
force.  
Considering significant amounts of payments under debt obligations planned for the second 
half of 2009, as well as the fact that only part of  these payments will be covered by new borrowings, 
according to our projections, the amount of the deficit of the financial account is likely to remain high.  
Although adjustments in the current account due to the sharp decline in domestic demand and 
the devaluation of the hryvna exchange rate were significant, they were not sufficient to compensate 
for the negative balance in the financial account in 20 09.  Accordingly, the deficit of the consolidated 
budget will be only to some extent covered by the IM F loan (8.2 bn USD for 2009), which will result 
in further reduction of the foreign reserves – by 2.1 bn USD, without taking into account exchange 
rate difference. 
Further use of macroeconomic regulators (the  squeezing of domestic demand and devaluation 
of the exchange rate of hryvna) will be rather li mited.  Thus, according to the National Bank of 
Ukraine's estimates, the decline in the gross demand (GDP) in quarter I of 2009 amounted to 
approximately 20%, which is one of the worst figures in the world.  
Further devaluation of hryvna is also und esirable due to the high degree of currency 
imbalances in the economy and net currency exchange losses of economic  agents. It is also necessary 
to take into account that currency exchange dest abilization may lead to the resumption of large 
outflows of cash currency from the banking system.  Ther efore, in order to further adjust the current 
account, possible measures that may be taken still include import restrictions for purposes of 
improving the balance of payments in conformity with Article XII of the GATT/WTO Agreement.  
Taking into account that refrigerators and p assenger cars are mostly consumer goods and do 
not impact the long-term potential for economic gr owth (unlike, for instance, consumption of 
investment goods), and in short-run will not cause a deficit on the market, nor will it impair the well-
being of consumers, Ukraine opted for temporal im position of import surcharge that would assist to 
restore equilibrium of Ukraine’s balance of payments. 
Taking into account the above c onsiderations and according to  our expert estimates, the 
maximal effect of the measure will be additional 10  percent reduction in th e import of refrigerators 
and passenger cars.  Accordingly, over the 6 months  the effect from these higher import duty rates 
may amount to approximately 350 ml USD, which w ill let increase the positive balance of the current WT/BOP/R/93 
Page 8  
 
account in 2009 approximately to 1.0 bln USD and to partly reduce the pressure on the foreign reserves.  
Ukraine is a highly liberalized market due to  its WTO commitments and concessions, it’s vast 
majority of bound tariff is actually applied rates ex isting today.  There is no room to use tariff 
regulation as an adequate WTO compliant first res ponse instrument to influence imports even in 
stable circumstances of trade. 
This being said, Ukraine is deprived of such inst rument and is extremely exposed and defenseless in 
front of any critical or tense situation in globa l markets, not to mention such unprecedented global 
financial and economic cr ises we have today. 
In the middle of the adverse and aggressively pr oliferous world crisis, with the well-known to 
all members specificity of invocation and time-consuming procedures of each of safeguard, 
antidumping or countervailing measures, Ukraine had to respond fast and act in a manner, that would 
comply with its commitments and good will not to create greater protectionism.  Antidumping needs signs of dumping, takes time for investigation and th e final effect of the measure may be dubious or 
turn out to be more restrictive to the market of the goods in question. Same is actually true about 
safeguards and countervailing.  
BoP provisions are among very few available for Ukraine today WTO legitimate safeguard 
measures of temporary nature to counteract s hocks and mitigate danger ous negative trends. 
Ukraine, recognizing the value and benefits of liberalized trade, takes careful steps not to 
create unnecessary obstacles to trade flows, even though being so open, makes Ukrainian economy 
very vulnerable and perceptive of any minor ne gative developments in terms of trade.  
Since last summer some of Ukraine major trade pa rtners raised applied ta riffs (they have this 
tool unlike Ukraine) for major Ukrainian exports like steel and grain, which wo rsened access to their 
markets and tightened our trade, thus de priving Ukraine of the revenues expected. 
At the same time it should be taken into consid eration that Ukraine introduced the measure in a 
very complicated moment, when some WTO member s have rather high level of import duties on cars 
comparing to Ukraine.  Another factor of pressu re on Ukraine was that the Governments of most 
leading economies employ the following wide range  of anti-crises measures with the aim to save 
national car-production industries: 
• Providing of financial assistance to the car-i ndustry, for example for the development of 
green technologies. 
• State financing of cheap consumer credits and reduction of interest rates for loans envisaged 
for new car purchasing. 
• Providing of state award for purchase of a new car instead of old one (introduced in 
10 countries). 
• Release of ecologically friendly cars from transport duties. 
• Increase of import duties. 
• VAT refund to buyers of new cars. 
• Reduction of taxes for stimulating new cars purchasing. 
• Creation of related governme nt procurement programs. 
• Providing support for leasing programs of the car producers. 
• Partial compensation of the expenses for cr edits, taken for technological refitting. 
Even with the surcharge today access to Ukrainia n market is open and there is no obstacle to 
trade. The measure has been reasonably relaxed a nd further plans are to eliminate it completely.  WT/BOP/R/93 
 Page 9 
 
 
Ukraine resorts to this measure among others - to  name a few: external credits and loans from 
donors and IMF loans, a number of steps the governme nt is taking to counteract the crisis on a 
systemic level, under the law on 13% surcharge the revenue will be accumulated in the country's 
Stabilization Fund, taxation basis is being widene d (e.g. new excise duties imposed of tobacco and 
spirits, cutting administrative costs are promoted in  governmental agencies, as well as serious review 
of budgetary spending in general) to achieve certain increase of its reserves. 
The basic document supplied by Ukraine contains  a more detailed and precise version of the 
information to which I am referring to as well as the charts with data.  Moreover, in the course of 
these consultations we are ready to provide add itional clarification and information, as may be 
required hoping it helps to explain the rationale for the measure Ukraine has introduced. 
 Mr Chairman, 
 It should be noted that the measure in question is purely a temporary one. According to the 
relevant Law its planned dur ation is until the 7 of September.  However, the Cabinet of Ministers of 
Ukraine intends to eliminate the re maining measures in the nearest fu ture.  The possibility of speeding 
up the termination of the safeguard will be considered in the light of any favourable development in 
Ukraine's balance of payments. 
 Finally, Mr Chairman, I would like once again to thank you and all the members of the 
Committee, the Secretariat, and the International Mone tary Fund for the attention you have given this 
matter and for the determination you show.  Ukraine sincerely hop es that the Committee will manage 
to reach consensus as regards draf t report for the General Council, reflecting all the views expressed.  
 Thank you. WT/BOP/R/93 
Page 10  
 
ANNEX 2 
 
Statement of the representative of the International Monetary Fund
 
 
1. Following years of favourable growth, the Ukrainian economy had become exposed along 
several dimensions.  In the context of significant terms of trade gains and large capital inflows, 
Ukraine's economy recorded very rapid growth since 2000 with average growth in excess of 
7 percent.  By early 2008, however, the ec onomy was overheating.  Credit growth exceeded 
70 percent, CPI inflation had risen above 30 pe rcent, and a buoyant property market pushed 
valuations to high levels.  Imports surged at a 50–60 percent annual rate and the current account 
deficit reached 7 percent of GDP by June 2008, leaving the rigidly managed currency overvalued by 
an estimated 10–20 percent.  Household and co rporate balance sheets had weakened owing to 
increased borrowing in foreign currencies and the un derlying fiscal position was deteriorating sharply.  
The authorities' fiscal and monetary policies, and in pa rticular the de facto exch ange rate peg, failed to 
address the building imbalances. 
2. Broadly coinciding with the deepening of the gl obal financial crisis in the summer of 2008, 
Ukraine was hit by a sharp terms-o f-trade shock.  In particular, in line with the plunge in global 
commodity prices, steel prices declined by around 80 percent from the peak levels reached earlier in 
the year.  At the same time, on the import side, Russia phased out remaining subsidies on imported 
gas.  In the context of the global financial turmoil,  Ukraine was also subject to a sharp reversal of 
external capital flows and was effectively shut ou t of international capital markets, although direct 
credit lines have been for the most part rolled over.   Sovereign CDS and EMBI spreads rose sharply, 
and Ukraine was subject to downgrades by various ra ting agencies.  Major strains were showing in the 
banking system, following a system wide run on de posits.  And a loss of confidence domestically led 
to capital flight out of hryvni a into foreign exchange cash. 
3. The negative shocks produced strong balance of payments pressures.  On the current account 
side, the adverse terms-of-trade s hocks led to an incipient current account crisis, with exports falling 
sharply on account of the decline in steel prices, a nd imports affected by the sharp jump in gas import 
prices.  The financial account, whic h had consistently experienced large net inflows, registered a large 
net outflow ($5.7 bn) in the fourth  quarter of 2008.  In addition, the NBU conducted large scale sales 
of foreign exchange to limit the depreciation of the hryvnia.  These developments produced a 
substantial financing gap and downward pressure on international reserves.  During the first quarter of 
2009, when the import measures were introduced, gro ss reserves fell by some $6 billion on account of 
heavy forex interventions, to around $25 billion, or 70  percent of the external debt service obligations 
due for the year (under the IMF program, 75 pe rcent is considered a satisfactory level). 
4. The authorities have adopted a comprehensiv e economic program, supported by a Stand-By 
Arrangement (SBA) from the IMF, that aims to re store confidence and support Ukraine's return to 
financial and macroeconomic stability.  The progr am adopts a multi-sector strategy towards these 
objectives.  To restore financial stability, measures are specified regarding (i) appropriate liquidity 
support and expansion of deposit guarantees;  (ii)   a stronger bank resolution framework, including 
availability of public funds for recapitalization; and (iii) a stronger framework for resolution of 
household and enterprise sector debts.  To facilitate adjustment to the large external shocks and allow 
a gradual reduction of inflation, the program incorporates the following adjustments to the 
macroeconomic policy framework:  (i ) a flexible exchange rate po licy, supported by base money 
targets and an appropriate intervention strategy;  ( ii) a gradual transition to inflation targeting (as a 
new nominal anchor);  (iii) resetting incomes policy in  line with targeted inflation, while protecting 
the most vulnerable;  (iv) maintaining an appr opriate fiscal stance commensurate with available 
financing; and (v) bringing energy sector prices more  in line with costs. Output risks are dealt with 
through fiscal contingency plans, and private sector  debt resolution measures.  The large balance of 
payments need identified at the start of the program  is fully met by the autonomous financing from the  WT/BOP/R/93 
 Page 11 
 
 
IMF under the SBA, combined with current account adju stment (that has been sharper than originally 
envisaged under the program). 
5. The IMF Executive Board completed the first review under the SBA on May 8, 2009.  The 
completion of the review released the second dis bursement of $2.8bn (so far $7.3bn of the total 
$16.9bn has been disbursed).  In light of the sharp deterioration in the econom ic situation since the 
program was designed, the 2009 fiscal target has been relaxed from balance to a deficit of 4 percent of 
GDP.  Corrective measures of 1 percent of GDP have b een taken to meet this target, and half of the 
IMF's second disbursement was channelled to the budget.  The authorities' implementation of the 
flexible exchange rate policy has been uneven, but  a significant exchange rate adjustment has taken 
place and the authorities have renewed their commitm ent to a flexible exchange rate regime.  
Monetary policies have been adequate and infla tion has been coming down appreciably.  Efforts to 
recapitalize and restructure the banking sector are on track. 
6. Since program inception, balance of payments ad justment has been very  sharp, but there are 
now some early signs of stabilization.  The current account has adjusted more rapidly than originally 
expected, reflecting a wrenching recession.  GDP was initially forecasted to decline by 3 percent in 
2009, but this is being revised to -12 percent, cau sing a sharp downward revision to projected imports.  
Exports have collapsed, broadly as expected, refl ecting lower prices and falling external demand, 
although a sharp depreciation of the hryvnia—by abou t 35 percent versus the U.S. dollar—has helped 
cushion the impact.  The financial account has continue d to register large-scale outflows, but the latest 
data point to a slight improvement. In the same ve in, the outflow of deposits from the banking system 
has come to a halt, and pressures on the exchange ra te have eased.  Financial indicators—sovereign 
spreads and asset prices—also suggest that some st abilization is occurring.  Reserve levels were 
bolstered by the Fund disbursement in early May.   Assuming adequate policy implementation, the 
staff expects the current account to continue to adjust rapidly—a surplus of about three quarter 
percent of GDP is projected for 2009—and fina ncial account outflows to moderate. Under this 
baseline scenario, gross reserves should stay at a comf ortable level.  However, risks to the program 
remain, relating both to external and domestic fact ors.  In particular, uncertainties regarding the 
financial situation of Naftogaz (the nationa l gas company) poses significant fiscal risks. 
7. The balance of payments pressures also pro duced policy responses which are inconsistent 
with IMF program conditionality.  These include th e 13 percent import surcharge on a wide range of 
commodities, that was in troduced by the authorities in March 2009 for balance of payments reasons. 
This measure constituted a non-observance of a co ntinuous performance criterion prohibiting the 
imposition of import restrictions for balance of pa yments reasons—standard in all Fund programs.  
The government subsequently notified the Fund that a cabinet of ministers resolution was adopted to 
restrict the surcharge to two product groups, and has agreed to remove the surc harge fully in the near 
future.  At the recent IMF Board meeting to discuss the first review under the SBA, Executive 
Directors called on the authorities to phase out th e import restrictions "without further delays". 
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