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25/09/2016

IMF pumps billions into Ukraine, seeking ‘immediate stabilisation’

Europe's East

IMF pumps billions into Ukraine, seeking ‘immediate stabilisation’

IMF Managing Director Christine Lagarde was one of the first bank chiefs to come forward in favour of innovative regulatory approaches to FinTech.

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The International Monetary Fund has agreed to pump $10 billion (about €9.4 billion) into Ukraine’s troubled economy over the next year, providing swift assistance for the country’s struggling finances as part of a larger four-year bailout.

The IMF board yesterday (11 March) approved a loan of $17.5 billion, with the bulk of the money quickly heading out the door. $5 billion was likely to be sent by the end of this week followed by another $5 billion in coming months, IMF officials said.

That will be combined with $7.5 billion in loans from other international organisations and an expected $15.4 billion in debt relief that Ukrainian officials hope to negotiate with bondholders.

The program “is very strongly front-loaded during the first year,” IMF Managing Director Christine Lagarde said in Berlin today. “Ukraine has satisfied all the prior actions that were expected and required of it in order to start running the program. We are off to a good start.”

The program aims to provide what Lagarde called “immediate economic stabilisation” to a country beset by conflict with Russia and uncertainty about its territorial integrity.

Prime Minister Arseny Yatseniuk said the IMF program’s impact should be felt quickly in a country struggling with balance of payments problems and a crashing currency.

The program “will enable us to stabilise the economy and the financial sector. It will be used to stabilise the currency. It will enable the Ukrainian economy to grow from 2016,” Yatseniuk said.

White House spokesman Josh Earnest welcomed the IMF’s action. He said, “The United States is working alongside international partners to provide Ukraine with the financial support it needs as it continues to take steps that will transform the Ukrainian economy and strengthen its democracy.”

After a year of political upheaval and war, Ukraine’s economy is in a tailspin. The currency is just back from record lows, the interest rates are the highest in 15 years, and the central bank has reserves of just $6.4 billion, barely enough to cover five weeks of imports.

The IMF said the economy should grow 2% in 2016 after a contraction of about 5.5% this year. By the end of 2015, Kyiv should have enough reserves to cover about three months of imports.

The IMF last year approved a $17 billion, two-year loan to Ukraine, but deemed the effort insufficient to support economic reform while the government continued battling pro-Russia separatists in eastern Ukraine following Russia’s annexation of the Crimea region. 

Background

Analysts assume that one of the objectives of the Kremlin is to transform Ukraine in a failed state.

According to the Ukrainian Ambassador to the EU Kostiantyn Yelisieiev, Ukraine has lost about 25% of its industrial potential because of the aggression of the Russian Federation against the Donbas. Also, the country has lost a lot of assets because of the illegal annexation of Crimea.

In addition, Ukraine is faced with the problem of internally displaced persons. Officially, one million people need humanitarian assistance.