IMF Mission Agrees New Loan For Ukraine

KIEV, Ukraine -- The IMF has reached an initial agreement with Ukraine on a multi-billion dollar loan, breaking months of deadlock on a crucial lifeline for the country's battered economy, officials said on Friday.

Prime Minister of Ukraine Yulia Tymoshenko (R) and Ceyla Pazarbasioglu, International Monetary Fund (IMF) mission chief to the Ukraine, smile during their press-conference in Kiev. The IMF has reached an initial agreement with Ukraine on a multi-billion dollar loan, breaking months of deadlock on a crucial lifeline for the country's battered economy, officials said on Friday.

The International Monetary Fund's mission to Ukraine said it would recommend the fund's board to release a second instalment of loans worth 2.8 billion dollars (2.1 billion euros) from a 16.4-billion-dollar package agreed in November.

"We have agreed with the authorities that we would propose to the IMF management that the next disbursement would be of 2.8 billion US dollars," Ceyla Pazarbasioglu, IMF mission chief to Ukraine, told reporters after talks in Kiev.

"We hope by mid-May that the (IMF) board of directors considers it appropriate," she said at a news conference with Ukrainian Prime Minister Yulia Tymoshenko.

The release of the credit -- the second tranche of the 16.4-billion-dollar loan package to help Ukraine deal with the economic crisis -- had been held up by IMF worries about the country's budget deficit and unstable politics.

"The resumption of cooperation with the IMF is more important than the money," said Olena Belan, analyst at Dragon Capital.

"It is a good signal for the investors, showing that Ukraine is taking anti-crisis measures and the economic situation is under control," she added.

According to Belan, there was an 80-90 percent chance the IMF's board would approve the disbursement.

The loan, Ukraine's biggest source of foreign income this year, is seen as essential for state finances as the economy battles a massive slump in industrial production.

The World Bank predicted the Ukrainian economy would shrink by nine percent in 2009 to make it one of the worst performing economies in the world.

The global crisis triggered a slide in the value of Ukraine's currency and caused a plunge in prices for metals, the country's main export, leading to thousands of layoffs in its industrial east.

But Pazarbasioglu said in a statement released later that while the economy was still badly affected by the crisis, the exchange rate had stabilised, the current account deficit had narrowed and inflation was falling.

The authorities had committed to maintaining a budget deficit of 4.0 percent of GDP in 2009, she added.

The loan programme would pave the way for a return to economic growth so long as the authorities showed "strong political commitment to decisive implementation of these policies."

The sum of 2.8 billion dollars in the staff-level agreement is bigger than initially planned -- the second instalment of the loan was initially only believed to be worth 1.9 billion dollars.

Payment of a third tranche, also of 2.8 billion dollars, would be dependent on a new review of the authorities' economic policies, the IMF said.

If the IMF board of directors takes its decision by mid-May, the money will be disbursed "in a few days," Pazarbasioglu said.

Ukraine received the first tranche of the credit -- worth 4.5 billion dollars -- in November.

Ukraine's ability to deal with the crisis had been severely hampered by a scorching and sometimes farcical row between Tymoshenko and her one-time ally, pro-Western President Viktor Yushchenko.

However the pair earlier this year agreed to act in harmony to fight the economic crisis, a condition set by the IMF for releasing the credit.

The government had first warned in February that it risked losing out on the loan and Standard and Poor's subsequently slashed its ratings on Ukrainian debt to reflect a vulnerability to default.

Analysts have said Ukraine is paying the price for failing to diversify its economy after the collapse of the Soviet Union and remains dependent on heavy industry, which is vulnerable to declines in export markets.

Source: AFP