Ukraine to get $16.5 billion IMF loan

IMF and Ukraine reach agreement on loan to shore up country's flagging economic situation.

October 26, 2008: 4:51 PM ET

MOSCOW (AP) -- The International Monetary Fund said Sunday it has reached a tentative agreement with Ukraine on a US$16.5 billion loan to help the country out of its growing financial turmoil.

The agreement, however, is contingent on unspecified legislative changes to Ukraine banking laws and approval by the IMF board, the fund said.

"The IMF is moving expeditiously to help Ukraine, and this program is focused on the essential upfront measures needed to maintain confidence and economic and financial stability," IMF Managing Director Dominique Strauss-Kahn said in a statement issued in Washington.

Ukraine's Finance Ministry and its central bank said the loan would help shore up the country's flagging economic situation.

"The support by the fund will promote an accelerated cooperation between Ukraine and other international financial organizations ... strengthen the confidence of private investors and ensure stable operations of the banking system of Ukraine," the institutions said in a joint statement.

If approved, the loan would be a crucial lifeline for the former Soviet republic, which is struggling to keep its financial system afloat amid the global economic crisis.

A sharp decline in world prices for steel, Ukraine's main export, and a steep drop in the value of its currency, the hryvna, have left many analysts speculating that the country faces dire economic straits. It comes on top of continuing political turmoil, with the country's leading politicians feuding ahead of new parliamentary elections scheduled for December.

The IMF agreed a similar, US$2.1 billion loan to Iceland after that country's banking system collapsed.

The world financial crisis has put heavy pressure on European currencies in recent days, with the British pound and the euro sagging on worries over Europe's exposure to emerging markets - particularly its crisis-stricken eastern neighbors.

Sunday's IMF announcement came just two days after the Ukraine's National Bank announced that it would allow the official exchange rate for the hryvna to move closer to the market's exchange rate, fulfilling a key IMF condition.

The hryvna has lost more than 20 percent in the financial crisis that has hit Ukraine hard. The currency fell to its historic low Thursday, trading at 6.01 per US$1 on the foreign currency exchange. The fall was due to a shortage of foreign currency because of a 40 percent fall in exports and a run on banks that stripped the banking sector of US$3.4 billion this month.

The IMF loan is expected to help stabilize the financial sector, but the deepening political crisis threatened to block the deal.

Allies of Prime Minister Yulia Tymoshenko broke parliament's electronic voting system Friday as they protested President Viktor Yushchenko's order to hold early elections.

Tymoshenko and Yushchenko were allies during the tumultuous 2004 Orange Revolution mass protests that propelled Yushchenko to the presidency. But the two have turned into fierce rivals ahead of the scheduled 2010 presidential election.

Yushchenko ordered a new parliamentary vote in December, but Tymoshenko is fighting to avoid the vote and retain her job.

Iceland close to $2.1B loan from IMF
Throwing the bathroom sink at the economy