Ukraine government wants cash flow help from Russia, IMF

International Monetary FundKiev, Moscow - Ukraine's cash-strapped government reached out to Russia and the International Monetary Fund in a hunt to keep its national budget afloat, officials said Monday.

A statement by Ukrainian Prime Minister Yulia Tymoshenko confirmed widely-reported rumours Kiev had requested a 5 billion dollar emergency loan from Russia, to keep the government solvent.

Tymoshenko's government in recent weeks has faced increasing difficulty in making ends meet due to a drastic drop in state revenues, and rising energy and social payment costs.

The Russian news magazine Kommersant on Monday reported Ukraine would use the Russian money to cover the Tymoshenko government's widening deficit.

President Viktor Yushchenko, Tymoshenko's main rival for control of the Ukrainian government, warned that the Russian credit could lead to increased and dangerous dependance by Kiev on Moscow for financial aid.

Russia has in the past given stabilization loans to other former Soviet republics, but Ukraine thus far has resisted them, preferring Western aid to often cheaper credits offered by the Kremlin.

The Ukrainian government's admission it was in talks with Russia over an emergency loan came hours after an announcement in Washington that the IMF had agreed to review its recent loan terms to Ukraine, given the former Soviet republic's worsening economy.

The IMF in November loaned Ukraine 16.5 billion dollars in a move widely seen as an emergency cash transfusion to prevent a wholesale collapse of Ukraine's banking sector.

Ukraine has received 4.5 billion dollars of the loan, but according to Tymoshenko critics Kiev has already spent as much as billion dollars of the credit in an unsuccessful attempt to defend the value of the national currency the hryvna.

An IMF statement issued over the weekend cited "more severe than expected" economic conditions in Ukraine, and "dramatic shortages of international capital, as grounds for the loan term review, to be completed in coming weeks.

IMF would consider removing a balanced budget condition set to to Ukraine as a key term for a January loan, as well as a softening to tax, monetary, and currency rules imposed on Ukraine in November by the fund as loan terms.

A key IMF condition under discussion for watering down is an end to most foreign goods import restrictions into Ukraine, said to be critical for the recovery of the Ukrainian economy by the IMF, but considered deadly to domestic manufacturers by the Tymoshenko government.

A fund team was in Kiev on Friday to discuss whether Ukraine had met the terms of the November loan sufficiently to merit a second tranche.

Ukraine's legislature, currently controlled by an alliance of pro-Tymoshenko and pro-Russia factions, in December passed a national budget planning a 3 per cent deficit and a 13 per cent excise on practically all imports - both direct violations of loan terms set out by the IMF. (dpa)