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 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.
"The financial support from the broader international community that
the program 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, centered on coal
and steel production, gas transit and grain exports.
Without IMF-mandated austerity measures, the economy could contract
by up to 10 percent this year, Prime Minister Arseny Yatseniuk told
parliament, explaining why his government had bowed to the Fund'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-percent 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 percent this year, according to
Yatseniuk, and a central bank monetary policy based on inflation
targeting.
The prime minister, who took on the job a month ago 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 percent — a recipe for popular discontent.
The IMF statement said a key element of the program would focus on
cleaning up Ukraine's opaque energy giant Naftogaz, which imports
gas from Russia's Gazprom. Naftogaz's chief executive was arrested
last week in a corruption probe.
"The program will focus on improving the transparency of Naftogaz's
accounts and restructuring of the company to reduce its costs and
raise efficiency," it said.
UKRAINE AIDED, RUSSIA ISOLATED
The international rescue for Ukraine was in sharp contrast to
Western measures to isolate Russia diplomatically and charge it an
economic price for the annexation of Crimea, home to Moscow's Black
Sea fleet and a majority of ethnic Russians.
Targeted U.S. and EU visa bans and asset freezes against senior
Russian and Crimean officials, with the threat of tougher economic
sanctions to come if President Vladimir Putin goes any further, have
accelerated capital flight.
Russian Economy Minister Alexei Ulyukayev said on Thursday capital
outflow could be around $100 billion this year, and would slow
economic growth to about 0.6 percent.
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"If we assume in the first quarter capital outflow was $60 billion
... then (it) will reach around $100 billion for the whole year,"
Ulyukayev told an investment conference. "Under this scenario, we
estimate that economic growth will slow down to 0.6 percent." The
Economy Ministry forecast in January that GDP growth this year would
be about 2.5 percent.
The World Bank gave a gloomier forecast for the Russian economy,
saying that in a high-risk scenario of persistent tension over
Ukraine, Moscow's economy could shrink by up to 1.8 percent, even
without Western trade sanctions.
Ukraine's dollar bonds jumped on news of the IMF bailout while
Russian stocks were down about 1.5 percent on economic pessimism
there.
U.S. President Barack Obama, in the main policy speech of his
European tour, warned Russia on Wednesday that it faced growing
isolation, incremental sanctions and more severe economic
consequences unless it changed course.
In a statement after Ukraine's IMF deal, the White House said: "This
represents a powerful sign of support from the international
community for the Ukrainian government.
"The IMF program will be a central component of a package of
assistance to support Ukraine as it implements reforms and conducts
free and fair elections that will allow all the Ukrainian people to
determine the future of their country."
Russian leaders have already said that Ukraine's discount from
Gazprom will come to an end next week. Yatseniuk said he expected
Moscow to charge Kiev as much as $480 per 1,000 cubic meters of gas
from April 1 instead of the current $268.50.
That could exacerbate the country's economic woes and cause
political instability in the run-up to a May 25 presidential
election.
The European Union signed a political association agreement with
Ukraine last week but is holding off from signing a far-reaching
trade and economic cooperation pact until a new elected government
is in place.
(Additional reporting by Pavel Polityuk in Kiev and Lidia Kelly and
Jason Bush in Moscow; writing by Paul Taylor; editing by Alastair
Macdonald)
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