I.M.F. Announces $17.5 Billion Package For Ukraine

BRUSSELS, Belgium -- The International Monetary Fund agreed on Thursday to throw a new $17.5 billion lifeline to Ukraine, hoping to stabilize the country as it teeters on the edge of default.

The new aid program “can represent a turning point for Ukraine,” said Christine Lagarde, managing director of the I.M.F.

The new plan replaces a $17 billion emergency bailout that was extended last year after mass street protests in Ukraine ousted the country’s president, Viktor F. Yanukovych; Russia annexed Crimea; and a violent separatist uprising began in the east of the country.

That uprising has now stretched into a nearly yearlong battle that has severely crippled Ukraine’s economy.

In addition to the heavy costs of the continuing military operation and the displacement of more than one million people from the east, Ukraine has had to grapple with a collapse in the value of its currency, the hryvnia, and spiking inflation.

Trade with Russia, long Ukraine’s largest partner, has plummeted, paralyzing many industries.

Foreign investment has dried up amid the turmoil.

Announcing the program in Brussels on Thursday, the fund’s managing director, Christine Lagarde, acknowledged that there were serious risks in providing any credit to Ukraine but said that the aid was needed urgently.

“This new four-year arrangement would support immediate economic stabilization in Ukraine as well as a set of bold policy reforms aimed at restoring robust growth over the medium term and improving living standards for the Ukrainian people,” Ms. Lagarde said in a statement.

“It is an ambitious program; it is a tough program; and it is not without risk.”

If successful, she added, it “can represent a turning point for Ukraine.”

Ms. Lagarde’s announcement came as peace negotiations in Minsk, Belarus, aimed at settling the conflict in eastern Ukraine appeared to yield some progress, including a cease-fire to take effect late Saturday.

About $4.6 billion in credit was extended to Ukraine from the previous rescue package, which, combined with the new program, brings the total assistance from the I.M.F. to more than $22 billion. 

Even that, however, will not be enough.

One reason for recent delays in announcing the new program has been that fund officials were working to identify how much help Ukraine would need and where that assistance would come from.

The European Union late last month agreed to provide $2 billion in loans to Ukraine, while the United States has pledged $2 billion in loan guarantees, on the condition that the Ukrainian government remain committed to an ambitious overhaul program that many officials in Kiev acknowledge has been slow to take shape.

While the fund had demanded that Ukraine begin major changes and undertake some tough austerity measures in exchange for last April’s rescue, the country’s economic problems have outpaced the prescriptions.

For instance, at the fund’s insistence, Ukraine raised the tariffs paid by regular households for natural gas by 50 percent, a painful and unpopular increase but one intended to begin rolling back heavy government energy subsidies that have long contributed to the country’s economic woes.

But in the months following the tariff increase, the value of the hryvnia collapsed by nearly the same amount, wiping out any additional revenue for the state-owned gas company, Naftogaz, which pays its suppliers, including Russia, in dollars.

Western officials have repeatedly expressed optimism that the government in Kiev is committed to change, and Ms. Lagarde repeated that optimism in her statement on Thursday.

“The Ukrainian authorities have clearly shown their commitment to ambitious reform on several key fronts,” Ms. Lagarde said.

As examples, she cited fiscal discipline that limited the decline in the country’s annual economic output last year to a better-than-expected 4.6 percent, the increase in household gas prices and new anticorruption programs. 

“The government is committed to front-loaded measures under the new program — including further sizable energy tariff increases; bank restructuring; governance reforms of state-owned enterprises; and legal changes to implement the anticorruption and judicial reform agenda,” Ms. Lagarde said.

She said that the government would also enter negotiations with its sovereign debt holders to reduce its huge borrowing costs, and that, along with other assistance, the total financing package for Ukraine would amount to about $40 billion over the next four years.

The new $17.5 billion program must still be approved by the fund’s board, but that is largely viewed as a formality.

Source: The New York Times