Last updated: April 17, 2009 7:58 pm

IMF set to unlock loan to Ukraine

Recession-battered Ukraine received a boost in confidence on Friday, as an International Monetary Fund mission said it would advise senior management to unlock a $16.4bn stand-by loan.

The loan was granted last autumn but frozen owing to concerns over fiscal prudence and political stability.

IMF officials said the staff-level agreement with Kiev demonstrated the fund’s willingness to adapt to country-specific needs amid deep world recession.

According to the plan, Kiev will use half of a second $2.8bn (€2.1bn, £1.9bn) tranche to service its budget deficit. The rest will be directed towards traditional currency stabilisation and balance of payment needs.

“Half could be used to bridge the budget deficit gap . . . to comply with our foreign debt obligations,” said Yulia Tymoshenko, Ukraine’s prime minister.

Ceyla Pazarbasioglu, the IMF’s mission chief for Ukraine, said the funds could arrive in Kiev by mid-May, if approved by the fund’s board. The first tranche of $4.5bn received late last year stabilised Ukraine’s financial system.

Kiev’s currency lost 40 per cent of its value last summer, but the IMF froze future tranches amid concern over the budget deficit and political bickering.

Bitter rivalry between Ms Tymoshenko, Viktor Yushchenko, president, and opposition groups has complicated Kiev’s ability to handle an economy in free-fall. Securing fresh IMF funds is seen as a victory for Ms Tymoshenko, a top contender in an October presidential contest. The expectation of fresh funds could also shore up confidence in the economy, one of the hardest hit by the global crisis.

“Ukraine’s progress should be complimented,” Ms Pazarbasioglu said. “The global economic and financial system is going through an unprecedented time. Ukraine obviously gets affected, but we are optimistic and very encouraged about the recent stability in Ukraine. It is a dynamic and resilient economy. It has adjusted to the shocks. The current account deficit has narrowed; inflation has declined more than we anticipated.”

On Tuesday, Ukraine’s government unilaterally adopted tough IMF conditions, bypassing parliament which failed to pass the unpopular legislation. The measures aim to balance the finances of Kiev’s pension fund and state gas company, boosting tax receipts and utility prices for households.

On Thursday, the government and central bank adopted a multi-billion-dollar bank restructuring plan, pledging to bail out seven domestically owned banks.

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