IMF throws Ukraine financial lifeline, Russian economy to slump
The International Monetary Fund announced agreement on a $14-18 billion standby credit for Kyiv 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.
“Ukraine is on the edge of economic and financial bankruptcy,” he said. Kyiv 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 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 US 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.