Beleaguered Ukraine finally got some good news. The International Monetary Fund announced today, March 27th, that it had completed urgent negotiations with Ukraine on an $18 billion loan package to stave off a looming default. The deal must still be approved by the IMF’s board next month.
The agreement requires Ukraine to allow the value of its currency to gradually decrease, to reduce corruption and bureaucracy, as well as eliminate huge state subsidies supporting low natural gas prices. The IMF deal was critical for Ukraine’s new government so they would have the tools to deal with the country’s debt obligations when its hard-currency accounts have been decimated by months of unrest. The country suffered through three months of severe political unrest before President Viktor F. Yanukovych fled to Russia, and then Russia moved in to militarily occupy the largely Russian-ethnic Crimea region.
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IMF package to unlock more loans for Ukraine
According to the IMF, signing the two-year loan deal will unlock more loans for Ukraine, including from the U.S. and the European Union. These additional loans are expected to add up to $9 billion, making a total of $27 billion in loans. The IMF loan package is also more flexible and less onerous than the $15 billion loan package the country had signed with Russia under former President Yanukovych.
IMF loan deal will require unpopular austerity measures
Several political analysts have commented that the austerity measures that must be implemented to receive the IMF funds will likely undermine the new government’s popularity before emergency presidential elections are held on May 25.
Interim Ukrainian Prime Minister Arseniy Yatsenyuk also unveiled new legislation designed to stave off “financial disaster” in Ukraine. The new laws freeze the minimum wage and raise taxes on the country’s largest businesses, which have effective market monopolies in many cases.
After announcing the new laws, Mr. Yatsenyuk followed up on Twitter: “The government will not allow the bankruptcy of Ukraine. The package is very unpopular, complex, hard reforms that have long needed to be done, submitted to Parliament.”
The New York Times Reports that senior U.S. officials said that the loans from the United States and the I.M.F. would be structured to help the government through the next few months without political unrest. The loan package is structured so that some of the more unpalatable reforms will be delayed until after the May election.