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31st Jul 2016

Western lenders approve $17bn Ukraine bailout

  • The Western bailouts are to mark 'a historical break with a past marked by crony capitalism, pervasive corruption, and poor governance' (Photo: International Monetary Fund/Cliff Owen)

International lenders have agreed a $17 billion (€12.3bn) bailout for Ukraine despite the pro-Russia uprising in the east and south of the country.

The International Monetary Fund’s (IMF’s) act of faith in Ukraine’s future was announced in Washington on Thursday (30 April) even as Ukraine’s acting President, Oleksandr Turchynov, said in Kiev his forces are “helpless” to quell the unrest.

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The bailout envisages $3.2 billion of emergency assistance and makes the rest of the money available as a “stand-by arrangement” over the next two years, subject to “frequent reviews” of Kiev’s compliance with austerity measures on a similar model to EU bailouts of Eurozone states.

IMF official Reza Moghadam said Ukraine will have to curb public wage and pension increases, combat corruption in public procurement and tax collection, boost tax on alcohol and tobacco, and increase household gas prices.

He added that 4.5 million vulnerable Ukrainian families will receive help to cope with the gas hikes.

“The [Ukrainian] authorities see the program as a historical break with a past marked by crony capitalism, pervasive corruption, and poor governance which weighed heavily on the economy. They believe that there is a window of opportunity for bold and ambitious reforms in order to transform Ukraine into a dynamic and competitive emerging market economy with a transparent government and a vibrant business environment,” he noted.

The IMF bailout comes on top of an €11 billion EU assistance programme, EU trade tariff reductions worth €500 million a year and a $1 billion US loan guarantee scheme.

The Western aid is, in part, a response to Russia’s attempt to destabilise Ukraine’s economy by massive gas price hikes in the run-up to post-revolutionary elections on 25 May.

But the biggest threat to Ukraine’s stability and to the success of the May vote remains what the IMF’s Moghadi called “geopolitical tensions” - the pro-Russia uprising in more than 40 eastern and southern Ukrainian cities.

"I will be frank: Today, security forces are unable to quickly take the situation in the Donetsk and Luhansk regions under control … They are helpless in those matters,” Ukraine’s Turchynov said on Thursday.

His PM, Arseniy Yatsenyuk, the same day announced that Ukraine will hold a referendum on national unity also on 25 May.

For his part, European Commission President Jose Manuel Barroso was equally frank in blaming Russia for the unrest.

He told the Atlantic Council, a Washington think tank, on Thursday: “I have no doubts that the goal of [Russian leader] Mr Putin is to have full control of Ukraine … I'm not saying that his goal is necessarily to occupy all Ukraine, but to have full control of Ukraine, that's his goal, I have absolutely no doubt.”

“In fact, he said it to me, he said several times that an independent Ukraine was an artificial creation of the West," the EU official added.

The pro-Russian rebels are currently holding hostage a team of German, Danish, Polish and Czech military officers who travelled to east Ukraine in a monitoring mission under the umbrella of the OSCE, a Vienna-based multilateral club.

The US ambassador to the OSCE, Daniel B. Bear, said on Thursday that “Such an incident has never, to our knowledge, taken place before.” He added: “It is imperative for senior officials in Moscow to openly condemn the abduction and demand the team’s immediate release.”

But the rebels and Russia itself showed no sign of taking positive steps.

Vyacheslav Ponomarev, a rebel leader, told press: “We have not had any contact with Moscow and also here do not obey Putin. We are the People's Republic of Donetsk … I do not think there can be a release today or tomorrow.”

The Russian ambassador to the UN, Vitaly Churkin, noted: “How can you put officers in a bus and send [them] without collusion [with rebels groups] in such a region, without documents confirming their status?”

“This trip was either a provocation by the leadership in Kiev or - forgive me - a stupidity.”

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