KIEV, April 17 - The International Monetary Fund and Ukraine on Friday reached an initial agreement that may result in a $2.8 billion installment disbursed to the country soon, officials said.

An IMF team, led by Ceyla Pazarbasioglu, spent the past week in talks with the government and had found “encouraging” signs that the Ukrainian economy has been adapting well to the global economic crisis.

"The exchange rate has undergone sizeable adjustment, the current account deficit has narrowed significantly and inflation has fallen more than expected," Pazarbasioglu said at a press conference.

Ukraine depends on the IMF lending for avoiding default on foreign debts this year and next, analysts said. Ukrainian government officials have been denying speculations that the country was on the verge of default.

Prime Minister Yulia Tymoshenko, who joined Pazarbasioglu at the press conference on Friday, said the agreement with the IMF team was an “extremely important event.”

“The reached agreement shows that a very powerful signal has been sent concerning the stability and the solvency of Ukraine,” Tymoshenko said. “I am convinced that this will also help to attract investors to Ukraine.”

The IMF team returned to Washington on Friday to report the progress to the IMF board of directors, which is expected to meet within weeks – perhaps by the middle of May - to decide on whether to resume the lending to Ukraine.

Ukraine received its first $4.5 billion installment in November within its $16.4 billion two-year loan helping the country to weather its worst economic and financial crises since the collapse of the Soviet Union in 1991.

But the lending was postponed in January after the Tymoshenko government had defied IMF calls to narrow budget deficit.

The announcement by the IMF team that it solved all issues with the government is a major victory for Tymoshenko, who has been battling opposition groups for their refusal to approve anti-crisis legislation.

The legislation was rejected by Parliament last week, but Tymoshenko had taken a controversial decision to approve the anti-crisis measures by government resolutions, giving the opposition groups a chance to question the legality of the measures.

The announced plans to recommend the disbursal of $2.8 billion installment, up from $1.85 billion originally expected, is another victory for Tymoshenko, who had requested the increase.

“An important result of the talks is not only the agreement on the program [of anti-crisis measures], but also on the increase of the second tranche that will be disbursed to Ukraine,” Tymoshenko said. “This gives Ukraine a chance to be stronger during this serious financial crisis.”

Pazarbasioglu said the IMF and the government made important progress inmost of the areas discussed.

"Following extensive and constructive discussions with the authorities, we have reached understandings on outstanding policy issues, including the implementation of fiscal corrective measures and bank recapitalization and strengthening," Pazarbasioglu said.

The Ukrainian authorities had committed themselves to maintaining the budget deficit at 4% of GDP in 2009, she added.

The World Bank predicted the Ukrainian economy would shrink by 9% in 2009. (tl/ez)