IMF: New loans to Ukraine still difficult despite reform attempts

IMF: New loans to Ukraine still difficult despite reform attempts Kiev - New loans to Ukraine's cash-strapped government remain difficult to approve, despite recent attempts at market reforms in country, a senior fund official said Tuesday. "We are continuing our discussions... but at this point is is premature to say, when it might be possible," said Ceyla Pazarbasioglu, International Monetary Fund (IMF) mission head in Ukraine.

Pazarbasioglu was in Kiev for the second day of talks with Ukraine's leadership on the possible pay-out of loans desperately needed by the former Soviet republic to cover widening budget deficits and a wobbling banking sector.

The IMF in November handed Ukraine 4.5 billion dollars in an initial tranche of a planned 16 billion dollar emergency loan to be paid out over the next 12 months.

The Fund in March refused to turn over the second tranche of the loan, 4 billion dollars, citing Kiev's failure to implement banking and other market reforms as stipulated in the November loan agreement.

Ukraine's Prime Minister Yulia Tymoshenko last week said she "looked forward" to Pazarbasioglu's visit, and that she "was fully confident" meetings between IMF and Ukrainian officials would re-open the IMF credit line to Kiev.

Tymoshenko in Monday talks with the IMF asked the fund to advance the delayed March tranche, and at the same time hand over the loan's third tranche by agreement due to be transferred only in June.

Tymoshenko's cabinet less than two hours after Pazarbasioglu's remarks announced it had instituted a packet of economic reform laws, according to Tymoshenko effectively meeting all IMF stipulations.

"I am sure that this package of anti-crisis executive orders, which have been implemented by the government, will make possible a balancing of Ukraine's financial system... and without doubt, form the basis of a favourable decision between Ukraine and the IMF," Tymoshenko said, according to a Channel 5 television report.

The instructions issued by Tymoshenko to the Ukrainian cabinet called for among other reforms reduction of government expenditure, hikes to legal maximum prices of energy, a single rate for pension taxes levied on businesses, a balanced budget for the state-owned national gas monopolist Naftohaz Ukrainy, and a recapitalization of the country's banking sector.

The Ukrainian government, though short of income, will nonetheless devote its own resources towards propping up the weakest banks, Tymoshenko said, with some 5.7 billion dollars to be spent purchasing controlling shares of the weakest ones.

IMF officials in talks with Kiev have said their greatest concern is Ukraine's banking industry, as a few failures in Ukrainina loan institutions could trigger a crash of banks across East Europe.

A key condition of the IMF money loaned to Ukraine thus far is that it go towards preventing widespread failures of Ukrainian banks.

Prime Minister Tymoshenko's Tuesday declarations - clearly aimed at Fund concerns - marked a retreat from earlier promises to voters that her government would never support across-the-board hikes to energy prices, or use government money to fund big business such as banking at the expense of social services like health or subsidised food prices.

Ukraine's parliament has been deadlocked for more than a year between three political parties run respectively by Tymoshenko, President Viktor Yushchenko, and former Prime Minister Viktor Yanukovich.

The legislature since since November has rejected or refused to consider practically all the reforms declared by Tymoshenko on Tuesday to have been made law by her orders as Prime Minister.(dpa)

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