IMF throws a €19.6bn lifeline to Ukraine
Published 28/03/2014 | 02:30
Ukraine won a $27bn (€19.6bn) international financial lifeline yesterday, rushed through in the wake of Russia's annexation of Crimea, as Moscow's economy minister spoke of the cost of military action in its former Soviet neighbour.
The International Monetary Fund announced agreement on a $14-18bn standby credit for Kiev in return for tough economic reforms that will unlock further aid from the European Union, the United States and other lenders over two years.
The IMF deal, to be approved by the global agency's board next month, was a political boost for the pro-Western government that replaced ousted Russian-backed President Viktor Yanukovich last month, prompting Moscow to seize the Black Sea peninsula.
"The financial support from the broader international community that the programme will unlock amounts to $27bn over the next two years," an IMF statement said.
The Ukraine crisis has triggered the most serious East-West confrontation since the end of the Cold War a quarter of a century ago, deepening the slump in Ukraine's battered economy, which is centred on coal and steel production, gas transit and grain exports.
Without IMF-mandated austerity measures, the economy could contract by up to 10pc this year, Prime Minister Arseniy Yatseniuk told parliament, explaining why his government had bowed to the Fund's conditions.
"Ukraine is on the edge of economic and financial bankruptcy," he said. Kiev opened the way for the IMF deal by announcing on Wednesday a radical 50pc hike in the price of domestic gas from May 1 and promising to phase out remaining energy subsidies by 2016, an unpopular step Mr Yanukovich had refused to take.
It also accepted a flexible exchange rate that is fuelling inflation, set to hit 12-14pc this year, according to Mr Yatseniuk, and a central bank monetary policy based on inflation targeting.