WASHINGTON – The International Monetary Fund approved a $17.5 billion loan program for Ukraine to help the former Soviet republic stave off default amid a conflict with pro-Russia rebels.
The IMF’s executive board, which represents the 188 member nations, gave the go-ahead for the four-year program, Managing Director Christine Lagarde said Wednesday. The aid is part of what the Washington-based lender and Ukraine’s government hope will be a $40 billion package, including aid from the U.S. and European Union and a prospective $15 billion in savings to be negotiated with Ukraine’s bondholders.
The financing offers a lifeline to an economy that the government expects to shrink as much as 11.9 percent this year, as the conflict in the eastern part of the country hobbles its industrial capacity. The funding, which replaces a two-year package from last April, also marks a deepening of the IMF’s involvement in the worst standoff in Europe since the end of the Cold War.
‘More time, more flexibility’
The revamped IMF plan “will provide more funding, more time, more flexibility, and better financing terms for Ukraine,” Lagarde said. “The program is ambitious and involves risks, notably those stemming from the conflict in the east of the country.”
The approval clears the way for Ukraine to begin negotiations with holders of its sovereign bonds, a move that Finance Minister Natalie Jaresko has said could save the country $15 billion
Ukraine’s bonds have recovered recently on optimism that investors won’t be subject to write-downs. The nation may avoid write-downs on the principal and instead reach a “straightforward extension of maturities,” Paul Rawkins, a senior director at Fitch Ratings, said in an interview this week.
Fragile truce in place
A truce negotiated in Minsk, Belarus, last month by leaders of Russia, Ukraine, Germany and France is gradually taking hold after 11 months of fighting that has killed at least 6,000 people, according to the United Nations. The U.S. said Wednesday that Russian-armed separatists have recently violated the cease-fire. Russia has denied U.S. and E.U. accusations that it’s sending troops and weapons into eastern Ukraine to help the rebellion.
Ukraine’s international reserves have slid by almost two-thirds to $5.62 billion as its central bank fights to end a rout in the nation’s currency, the hryvnia. Lagarde announced initial details of the program Feb. 12, saying the financial assistance would help Ukraine stabilize its economy and restore growth.
The new IMF program replaces last year’s package that was valued at $17 billion at the time. The government had drawn about 27 percent of the available aid from the program.