IMF approves $16.5bn loan to help stabilise Ukraine

THE INTERNATIONAL Monetary Fund (IMF) has approved a $16.5 billion (€12.9 billion) loan programme for Ukraine to ease strains from the global financial crisis, and officials expressed confidence yesterday that the country was out of the woods.

The IMF, in a statement issued late on Wednesday, said it would immediately disburse $4.5 billion to the government under the two-year loan agreement.

"The authorities' programme is designed to help stabilise the domestic financial system against a backdrop of global deleveraging and a domestic crisis of confidence, and to facilitate adjustment of the economy to a large terms-of-trade shock," the fund said. "The authorities' plan incorporates monetary and exchange-rate policy shifts, banking recapitalisation, and fiscal and incomes policy adjustments."

In Kiev, president Viktor Yushchenko welcomed the decision, taken after Ukraine's fractious parliament approved enabling legislation. He said it provided a "signal to the international community to boost the rating of trust in our country".

Prime minister Yulia Tymoshenko, the president's former ally turned rival, said the loan would "allow us to stabilise completely the financial situation in Ukraine".

The head of the central bank's policymaking council later said it was the bank's open-ended intervention that stabilised the hryvnia currency after it hit a historic low last week. Daily intervention of up to $500 million, Petro Poroshenko said, had reduced demand for dollars and restored stability.

"Exporters had earlier held foreign currency in anticipation of a higher (dollar) rate and dealers had earlier tried to make money on working the rates. But today we have a significantly reduced scope for speculative operations."

Mr Poroshenko also said subsequent tranches of the IMF loan would depend on whether authorities formally requested them.

Disbursement of parts of IMF credits is generally linked to further review of conditions in the country receiving the funds.

The IMF decision was issued along with forecast indicators predicting that Ukraine would sink into recession next year, with a 3 per cent fall against 6 per cent growth this year.

In a statement, Murilo Portugal, IMF deputy managing director, said Ukraine's economy, especially its banking system, was under severe stress, caused by a drop in global prices for steel - the country's main export - and global financial turmoil.

He said Ukraine's programme would seek to restore financial and economic stability through a more flexible exchange rate regime with targeted interventions, so-called "pre-emptive" recapitalisation of banks, and tighter monetary policy.

"The flexible exchange rate regime, backed by an appropriate monetary policy and foreign exchange intervention, will help absorb external shocks and avoid disorderly exchange market developments," Mr Portugal said.

"The recent unification of official and market exchange rates should increase clarity about the regime."

Mr Portugal said that, as credit pressures abate, tighter monetary policy will be needed to guard against inflation.