KIEV, Oct. 20 – President Viktor Yushchenko on Monday announced a sweeping economic rescue package that includes creation of a multi-billion dollar state stabilization fund.

The package, which was approved at a meeting of the National Security and Defense Council, the country’s top security body, consists of 10 bills that Yushchenko had submitted to Parliament for urgent approval.

“What’s ahead of us is a phase of serious national and international challenges,” Yushchenko said in a statement. “We have to prevent deep recession, not to let recession in leading sectors of economy transform into depression, or a long-term crisis.”

The package is the most comprehensive set of measures aimed at averting severe financial crisis in Ukraine since the country’s banking system had started to experience turbulence three weeks ago.

But the announced measures go beyond the banking sector, also targeting other sectors, such as the steel sector, Ukraine’s leading earner of hard currency, suggesting the situation may have been worse then the government had earlier disclosed.

The hryvnia, the national currency, lost 9.2% of its value against the U.S. dollar over the past three weeks, forcing the National Bank of Ukraine to start massive interventions to stabilize the currency.

The NBU also introduced other measures, including restrictions on early withdrawal of deposits, aimed at containing the panic and averting the run on deposits. The measure was launched after depositors had withdrawn about $1.3 billion in deposits, 2.7% of the total, between October 1 and October 10.

Yushchenko, a former prime minister who had designed and handled an economic rescue plan that had helped Ukraine to avert default on $2.2 billion in Eurobonds in April 2000, said the country needs unity to successfully tackle the current crisis.

The package includes creation of the state stabilization fund, worth tens of billions of hryvnias, that will be used to acquire biggest banks or other important businesses that may experience significant liquidity problems.

The measures also call for increasing to 100,000 hryvnias, or $20,000, the maximum guarantee of deposits, up from 50,000 hryvnias currently, to calm down the people and to stop the run on deposits. The increase covers up to 98% of deposits currently kept in Ukrainian banks, he said.

“The bill on the stabilization fund can be supported by all healthy forces in Parliament, as well as the bill on guaranteeing the people’s deposits,” Yushchenko said. “The rest of the bills may be debated to see which ones can be approved.”

The other measures call for slashing by 20% spending on state bureaucracy, review of imports duties perhaps to reduce imports, cutting populist social spending and eliminating budget deficits in 2008 and 2009.

“The key task is radical review of the spending policy,” Yushchenko said, in a remark that attacks Prime Minister Yulia Tymoshenko’s rampant social spending since January.

“We have to reject, to forget those populist things that had dominated budget policy over the past eight months,” Yushchenko said. “This was an erroneous way that had never led and would never lead to the growth in living standards of the people.”

“We are switching to policy of restricting social transfers, one-shot payments that had to a large extent destroyed our stability over the past eight months,” Yushchenko said.

The package also addresses potential problem of repayment of almost $40 billion in corporate foreign debts by some banks and companies. Yushchenko said a special team has been already working on ways of optimizing the payments.

“I don’t want to say that debt repayment in the steel sector - whose exports had fallen by 40% - is an easy task, but we have all the instruments, assets, resources that may help work in calm way,” Yushchenko said.

The International Monetary Fund, which is in talks with Ukraine over up to $14 billion loan, and the European Bank for Reconstruction and Development may be asked to help to handle those payments, he said.

Maintaining healthy finances should be the key task for the government, Yushchenko said.

“There should be no more populism, no more excessive spending,” Yushchenko said. “Any funds raised from privatization must not be spent on consumption. They must be spent on development. We increase budget spending on investments. This policy will affect this year and 2009.” (tl/ez)