KIEV, Sept. 27 - Ukraine needs to press on with reforms, as loans alone will not help the economy out of financial crisis, Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said Saturday.

Ukraine, its economy deeply affected by the global financial crisis, is surviving on a $16.4 billion lifeline from the IMF. The Washington-based lender will decide next month whether Ukraine qualifies for $3.1 billion loan installment.

"Loans can be useful to solve problems immediately, but the root of the problems lies within the country," Strauss-Kahn said at a forum in the Ukrainian resort town of Yalta via a video link. His comments were dubbed into Russian.

"No matter how many loans you get you may not solve these problems. Instead you may increase the indebtedness of the country, and thus end up in a worse situation than you started."

To secure the IMF's help, Ukraine promised to take measures to balance its budget, revitalizing state energy firm Naftogas and the banking sector. However many pledges remain unfulfilled.

"The IMF works as a doctor not a policeman," Strauss-Kahn said. "The big part of the efforts must be made in the countries themselves. Ukraine is already doing a lot... but there are still problems."

The comment is the latest evidence that the government of Prime Minister Yulia Tymoshenko has not been delivering on its earlier commitments to implement reforms in exchange for loans.

It echoes with President Viktor Yushchenko, who has recently taken the government to task for failure to implement five out of six IMF demands, including the hiking of domestic natural gas prices.

An IMF team is expected to arrive in Ukraine in October to check whether the government has adhered to the agreed reforms. The team was in Ukraine earlier this month, but little progress has been made over disbursement of the next installment.

The government hopes to receive $3.1 billion installment from the IMF before the end of the year in order to be able to meet the country’s foreign debt obligations.

The fund approved a $16.4 billion two-year standby loan in November 2008 to support Ukraine’s shrinking economy that had been affected by the global financial crisis.

Tymoshenko, in order to receive a $3.3 billion installment from the IMF in early August, had promised to hike domestic gas prices by 20% on Sept. 1. The price hikes were seen as crucial for the health of the country’s energy sector.

But three weeks later – after the government already spent the money received from the IMF, mostly on foreign debts and gas supplies – Tymoshenko suddenly reversed herself and said there would be no price hikes. (nr/ez)