Seeking to combat a spreading global financial crisis, the International Monetary Fund said Sunday it had reached a tentative agreement to provide Ukraine with $16.5 billion in loans and announced that emergency assistance for Hungary had cleared a key hurdle.
The decisions were announced by IMF Managing Director Dominique Strauss-Kahn, who stressed that the 185-nation lending agency would act with speed to provide support for countries whose economies are being buffeted by the crisis.
Strauss-Kahn said the loan for Ukraine was designed to bolster confidence and noted that the assistance was sizable in relation to the country’s borrowing rights with the IMF.
In a separate announcement, Strauss-Kahn said the IMF staff had reached broad agreement with Hungarian authorities on a reform package that the country will implement as a condition for getting its own emergency loans from the IMF. Agreement on reforms is a necessary first step in receiving IMF assistance.
Strauss-Kahn said the IMF was ready to approve a “substantial financing package” for Hungary within the next few days after all the details of the reform program are put in final form.
He said the IMF’s executive board would consider loans for Hungary under expedited procedures. He did not give a figure for how large the IMF loan to Hungary would be.
In his comments on Ukraine, Strauss-Kahn said in a statement, “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.”
The decision to aid Ukraine came two days after the IMF announced it was supplying a $2 billion loan package to Iceland, whose banking system has collapsed amid the global credit crunch.
Iceland, the first Western nation to receive IMF assistance in more than three decades, and Ukraine will both be given IMF loans in an effort to stabilize their economies.
The IMF’s executive board is expected to consider in the coming week ways to streamline its emergency loan programs as it braces for a stream of petitions from countries seeking support.
President Bush and other leaders of the Group of 20 major industrial and emerging market economies will meet in Washington next month to discuss ways to overhaul the global financial architecture to better cope with the current financial crisis.
The ongoing global turmoil has resulted in the biggest upheavals on Wall Street in 70 years and prompted Congress on Oct. 3 to pass a $700 billion rescue package for the U.S. financial system. Britain and other European nations have put forward massive resources to stabilize their countries’ banks.
Strauss-Kahn said the agreement with Ukraine would be sent to the IMF’s 24-member executive board for approval once the country’s legislature has made changes to improve the way the government handles bank failures. He praised the reform package that Ukraine had worked out with an IMF staff team.
“Ukraine has developed a comprehensive policy package designed to help the country meet the balance of payments needs created by the collapse of steel prices and the global financial turmoil and related difficulties in Ukraine’s financial system,” Strauss-Kahn said.
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 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 $1 on the foreign currency exchange. The fall was due to a shortage of foreign currency because of a 40 percent decline in exports and a run on banks that stripped the banking sector of $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.