The International Monetary Fund last night approved a $16.5 billion loan program for Ukraine that includes monetary and exchange rate policy shifts to ease strains from the global financial crisis.
The IMF said it would immediately disburse $4.5 billion to the government under the two-year loan agreement.
"The authorities' program is designed to help stabilize 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 IMF said in a statement.
"The authorities' plan incorporates monetary and exchange rate policy shifts, banking recapitalization, and fiscal and incomes policy adjustments," it added.
Murilo Portugal, IMF deputy managing director, said Ukraine's economy, especially its banking system, was under severe stress, caused by a drop in global steel prices, the country's main export, and the global financial turmoil.
He said Ukraine's program would seek to restore financial and economic stability through a more flexible exchange rate regime with targeted interventions, so-called "preemptive" recapitalization 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," Portugal said in a statement.
"The recent unification of official and market exchange rates should increase clarity about the regime," he added.
He said recently imposed exchange controls will be phased out as confidence returns to the economy.
Ukraine's central bank has been intervening routinely since early October in the currency market, which lifted the hryvnia currency from historic lows last week. This week, the central bank began offering buy-sell rates for foreign currencies after
previously intervening through only selling or buying a currency.
Portugal said as credit pressures abate, tighter monetary policy will be needed to guard against inflation.
He said the government's target of a balanced 2009 budget will be kept under review, although it could be achieved through expenditure restraint and a phased increase in energy tariffs.