The International Monetary Fund has approved a two-year, $17bn (£10bn) loan package for cash-strapped Ukraine as it seeks to regain stability following Russia’s annexation of Crimea.
The IMF assistance pledged in March was hinged on economic reforms in Ukraine, including raising taxes, freezing the minimum wage and raising energy prices – all steps that could hit households hard and strain the interim government’s tenuous hold on power.
“Urgent actions were necessary. Urgent decisions were taken by Ukraine and decisions now have just been taken by the IMF,” its managing director, Christine Lagarde, said.
Ukraine’s interim government finds itself caught between the demands of international creditors and a restive population that has endured decades of economic stagnation, corruption and mismanagement.
The IMF’s decision to approve the loan paves the way for Ukraine to receive $15 bn (£8.9bn) in additional assistance pledged by the World Bank, the EU, Canada, Japan and other European entities, and $1bn (£600m) in loan guarantees from the US that Congress recently approved.
As part of the deal, Ukraine will be required to use some of the $17bn to repay money it already owes the monetary fund.
Ukraine, a nation of 46 million, is in turmoil after Russia annexed Crimea. Russian president Vladimir Putin has massed 40,000 troops on Russia’s border with Ukraine in what many fear is the first step to an invasion. Russia’s actions have created a stand-off with the US and many European nations.
“Today’s final approval for the $17bn IMF programme marks a crucial milestone for Ukraine,” US treasury secretary Jacob Lew said.
“The IMF programme, in conjunction with bilateral assistance from the United States and other nations, will enable Ukraine to build on the progress already achieved to overcome deep-seated economic challenges and help the country return to a path of economic stability and growth.”
Ms Lagarde said there were risks to the IMF loan but that Ukraine had demonstrated during the past few weeks that it can undertake reforms, such as ones addressing its exchange rate and the price of natural gas. “We believe that Ukraine has an opportunity to seize the moment,” she said.
Meanwhile, anti-government demonstrators in one of eastern Ukraine’s main cities have stormed the local prosecutor’s office. Riot police fired stun grenades as the protesters moved on the building in Donetsk, but some demonstrators wrested shields away from officers.
The clash came after a march by several hundred people carrying flags of the Donetsk People’s Republic, a movement that seeks either greater autonomy from the central government or independence and possible annexation by Russia.
Donetsk is the heartland of support for Russia-friendly former President Viktor Yanukovych, who was ousted in February after months of protests in the capital.