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  • Jul 31, 2014
  • Updated: 1:32pm
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UKRAINE

IMF pledges US$18b to bailout Ukraine as UN condemns Russia and Congress backs sanctions

International action to reinforce Ukraine's economy promised as United nations votes against Russia's annexation of Crimea and the United States prepares new sanctions

PUBLISHED : Friday, 28 March, 2014, 11:06am
UPDATED : Friday, 28 March, 2014, 12:11pm

The world rushed on Thursday to help Ukraine, with the International Monetary Fund pledging up to US$18 billion in loans, the UN condemning the vote that drove Crimea into Russian hands and the US Congress backing even harsher sanctions against Russia.

Yet even with such intensive help to prop up the teetering economy, Ukraine’s prime minister warned of painful times ahead from economic reforms that were sure to drive up energy prices.

Meanwhile, Yulia Tymoshenko, one of the country’s most divisive figures, announced she would run for president – a move sure to have an impact on Ukraine’s turbulent politics.

President Barack Obama called the swell of international support a “concrete signal of how the world is united with Ukraine”.

“The decision to go forward with an IMF programme is going to require a lot of courage,” Obama said, speaking in Rome. “It will require some tough decisions.”

In a passionate address to parliament in Kiev, Prime Minister Arseniy Yatsenyuk warned that Ukraine was “on the brink of economic and financial bankruptcy” and laid out the fixes needed to put the country back on track.

“The time has come to tell the truth, to do difficult and unpopular things,” Yatsenyuk said, adding that Ukraine was short US$25.8 billion – “equivalent to the entire state budget for this year”.

The IMF loan, which is expected to range between US$14 billion and US$18 billion, hinges on structural reforms that Ukraine has pledged to undertake.

Ukraine’s new government finds itself caught between the demands of international creditors and a restive population that has endured decades of economic stagnation, corruption and mismanagement.

The reforms demanded by the IMF – which include raising taxes, freezing the minimum wage and hiking energy prices – will hit households hard and are likely to strain the interim government’s tenuous hold on power.

“The time has come to tell the truth, to do difficult and unpopular things”
Arseniy Yatsenyuk

Ukraine, a nation of 46 million, is battling to install a semblance of normalcy since President Viktor Yanukovych was ousted in February after months of protests ignited by his decision to back away from closer relations with the EU and turn toward Russia. Over the last few weeks, an interim government has formed, Ukraine lost Crimea to Russia and further possible military incursions by Moscow are feared.

“This is a kamikaze government that perfectly well understands that there is no other way to stabilise Ukraine,” said Viktor Zamyatin, analyst with the Kiev-based Razumkov Centre think tank. “The catastrophic state of Ukraine’s economy has forced the government’s hand.”

But he said it could pay a steep price.

“It is hard to explain to the voter that the worsening of the economy has happened not because of the revolution, but because of Viktor Yanukovych’s policies,” he said.

One unpredictable source of potential unrest comes from the nationalist Right Sector movement, which rallied hundreds of protesters outside parliament on Thursday in a demand for Interior Minister Arsen Avakov’s resignation following the killing this week of one of their leaders. The group played a key role in bringing about Yanukovych’s removal.

“The power is trying to rob our victory from us. But it is we that should be dictating terms, and we have the means to do this,” declared 31-year-old Anton Turilo, who was wearing a helmet and camouflage gear.

In Washington, Congress overwhelmingly backed legislation in the House and Senate to aid cash-strapped Ukraine and punish Russia for its annexation of Crimea.

On a voice vote, the Senate approved a measure that would provide US$1 billion in loan guarantees to Ukraine and give Obama broad authority to impose more sanctions on Russia and President Vladimir Putin’s inner circle.

The House endorsed a different version on a 399-19 vote that also provides assistance to Ukraine and penalises Russia. Lawmakers hope to send a single bill to the White House for Obama’s signature by the end of the week.

New Jersey’s Democrat Senator Bob Menendez, chairman of the Senate Foreign Relations Committee, said the votes were “critical for President Putin to hear”.

“We are in a dangerous moment in history with global consequences and the world is watching,” he said.

Meanwhile, in a sweeping rebuke of Moscow, the UN General Assembly overwhelmingly affirmed Ukraine’s territorial integrity and deemed the referendum that led to Russia’s annexation of the Crimean Peninsula illegal. The vote was 100 in favour, 11 opposed and 58 abstentions.

Russia shrugged off the torrent of criticism, announcing it would set up its own payment system to rival Visa and MasterCard after the two companies pulled their services from some Russian banks in the wake of international sanctions.

Tymoshenko, who was released from prison last month following the overthrow of her fierce rival Yanukovych, is variously admired as an icon of democracy or detested as a self-promoting manipulator with a shady past.

This will be the 53-year-old Tymoshenko’s second attempt to win the presidency. She narrowly lost to Yanukovych in 2010 and spent two years in jail on charges that many in the West considered politically motivated.

“I will be the candidate of Ukrainian unity,” Tymoshenko said in announcing she would be a contender in the May 25 election. “The west and centre of Ukraine has always voted for me, but I was born in the east.”

While western regions of Ukraine favour closer ties to Europe, the eastern part of the politically divided nation has long aligned with neighbouring Russia.

Still, the dire state of the economy is an unavoidable issue: Ukraine’s Finance Ministry has said it needs US$35 billion over the next two years to prevent default.

The IMF said recent economic policies have drastically slowed Ukraine’s growth and brought foreign currency reserves to a “critically low level”.

“Ukraine’s macroeconomic imbalances became unsustainable over the past year,” the IMF said.

One immediate reform will be to let gas prices for households float up to become more in line with market prices. Ukraine for years has relied on discounted gas from Russia and then subsidised that further, so that residents are used to extremely low energy prices. Russia has abandoned the discounts and Ukraine’s government cannot afford the extra subsidy.

Other donors, including the European Union and Japan, have already pledged further aid to Ukraine, conditional on the IMF bailout and reform package. The total amount of international assistance will be about US$27 billion over the next two years.

Separately, the 28-nation EU has prepared a wider aid package including loans and grants for Ukraine expected to total more than US$10 billion over the coming years.

 

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This article is now closed to comments

honger
Good, this will help pay off the billion dollar Russian bonds and debt, not to menton a 70%hike in gas prices - Putin will be very grateful.
rudy.haugeneder
With ethnic turmoil threatening to tear Ukraine apart and other now hugely democratic former Soviet nations opposed to EU and American trade sanctions against Russia for its takeover of Crimea, it appears the once dead Cold War is regaining momentum.
Meanwhile, the EU is slowly disintegrating and if wholesale sanctions come into effect, it won't be long before the Euro monetary unit collapses with Germany and France restoring their old currencies and again setting up economic and political boundaries; not actually surprising since such unions which don't have a common language or, in some cases, largely different cultures, are doomed to fail when economic times get tough: "Messages over the past week from officials in the EU's 11 ex-Communist member states indicated that most are going to resist any attempt by the bloc to impose the next stage of sanctions - on trade and economic ties," says the story.
(Reuters) - Hungary is against the European Union imposing a round of economic sanctions on Russia over its intervention in Ukraine, Prime Minister Viktor Orban was quoted as saying in an interview published on Friday.
The central European country of 10 million people relies on Russia for about 80 percent of its natural gas needs and recently signed a 10 billion euro deal with Moscow for Rosatom to expand Hungary's Paks nuclear plant, a major power generator.
 
 
 
 
 

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