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IMF board approves $16.4 billion bailout
Journal Staff Report

KIEV, Nov. 6 - The International Monetary Fund’s executive board late Wednesday approved a $16.4 billion bailout package for Ukraine to stabilize the country’s banking system and to support the national currency, the hryvnia.

The IMF said a $4.5 billion payment will be disbursed immediately helping the authorities to stabilize Ukraine’s domestic financial system, hurt by “global de-leveraging and a domestic crisis of confidence.”

In return Ukraine has committed to adopt a flexible exchange rate regime with targeted intervention, recapitalize its banks, eliminate its budget deficit in 2009 and tighten monetary policy.

Ukrainian leaders on Thursday praised the decision to approve the package and said the money will increase confidence in the Ukrainian banks and help the hryvnia.

“I believe this is a great victory because those credit resources that we have received are the cheapest that you can imagine,” Prime Minister Yulia Tymoshenko said in a statement.

President Viktor Yushchenko said the package would improve confidence among businesses, provide resources for growth in priority sectors and guarantee the liquidity of the banking sector.

“The implementation of decisive economic and financial policies will allow us not only to withstand the world crisis, but to come out even stronger,” Yushchneko said in a statement. “We need large scale structural reforms. This is what I direct the National Bank of Ukraine and the government to.”

Murilo Portugal, deputy managing director of the IMF, praised the Ukrainian authorities for drafting a “strong and comprehensive” package of measures to address the challenges Ukraine is facing.

“Decisive measures have already been implemented by the authorities, including the passage of anti-crisis legislation,” Portugal said in a statement. “Moreover, the authorities' policy framework is sufficiently robust to adapt to evolving circumstances.”

“The commitment of leaders of the main political parties to the core elements of the program increases the prospects for successful program implementation,” Portugal said. “All these elements give confidence that the program will succeed in stabilizing economic and financial conditions."

The hryvnia strengthened on Thursday closing at 5.815 hryvnias to the dollar, compared with 5.825 hryvnias to the dollar on Wednesday, dealers said.

The hryvnia has been showing stable performance over the past five days after the National Bank of Ukraine had decided to spend to step up interventions by selling hard currency to all businesses, not only those that import energy and other critical materials.

The NBU’s policy change came shortly after the hryvnia had plummeted to 7.20 hryvnias to the dollar last week in reaction to panic on the financial market.

Ukraine’s economy has been seen as vulnerable for some time, due to high inflation, low foreign exchange reserves relative to short term foreign debt, heavy reliance by its banks on foreign funding, balance sheet currency mismatches and a fragile fiscal position.

The collapse in the price of steel has led to a sharp deterioration in its terms of trade and its current account position, highlighting the external vulnerabilities. The spread of the global financial crisis has led to a sudden drying up of dollar and euro liquidity, along with a sharp decline in capital inflows.

The failure of Prominvest Bank, the nation’s sixth largest, prompted a run on bank deposits in October. The Ukrainian authorities were also forced to impose some exchange controls, which the IMF said Ukraine would lift as soon as confidence returned.

The US and other western nations are keen to stabilize Ukraine for geopolitical as well as economic purposes, given its important position in Eastern Europe as a neighbor of Russia. (nr/ez)




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Currencies (in hryvnias)
  28.03.2024 prev
USD 39.23 39.14
RUR 0.425 0.422
EUR 42.44 42.44

Stock Market
  27.03.2024 prev
PFTS 507.0 507.0
source: PFTS

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