Ukraine won a $27-billion international financial lifeline on Thursday, 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 $14-18 billion 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.
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“The financial support from the broader international community that the programme will unlock amounts to $27 billion 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-century ago, deepening the slump in Ukraine’s battered economy, centred on coal and steel production, gas transit and grain exports.
Without IMF-mandated austerity measures, the economy could contract by up to 10% this year, Prime Minister Arseny Yatseniuk told parliament on Thursday, explaining why his government had bowed to the IMF’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 50% hike in the price of domestic gas from May 1 and promising to phase out remaining energy subsidies by 2016, an unpopular step Yanukovich had refused to take.
It also accepted a flexible exchange rate that is fuelling inflation, set to hit 12-14% this year, according to Yatseniuk, and a central bank monetary policy based on inflation targeting.
The PM, who took on the job saying his government was on a “kamikaze” mission to take painful decisions, said the price of Russian gas on which the nation depends may rise 79% — a recipe for popular discontent.
The IMF statement said a key element of the programme would focus on cleaning up Ukraine’s opaque energy giant Naftogaz that imports gas from Russia’s Gazprom. Naftogaz’s CEO was arrested last week in a corruption probe. “The programme will focus on improving the transparency of Naftogaz’s accounts and restructuring of the