FX.co ★ IMF’s Chief: Ukrainian economy going to collapse without Russia

IMF Managing Director Christine Lagarde said that the Ukrainian economy had been hit badly last year and was heading for disaster when Russian bailout money helped it to stay afloat. "Without the support that they were getting from this lifeline that Russia had extended a few months ago, they were heading nowhere," Lagarde said in an interview broadcast on the US PBS channel. The Fund’s head added there is no chance for Ukraine to survive without a financial aid. The IMF chief confessed that Ukraine with its huge budget hole had been cut off from international financial markets. Lagarde stressed that the IMF’s financial support comes at a price. The organization gives money only if a country takes steps for economic recovery so it would become self-sufficient without aid in the future. She also noted that Ukraine will have to make some hard choices reforming its fiscal policy. In particular, reforms for Ukraine “mean dealing with the right price of energy,” says Lagarde, adding corruption and other structural economic changes to Kiev’s to-do list. Last November, Russia’s President Vladimir Putin provided an aid package to the ally pushing Viktor Yanukovych to reject a trade deal with Europe. Russia undertook an obligation to buy the Ukrainian eurobonds in the amount of $15 billion. More than that, Gazprom made a steep discount of over $100 on natural gas.
In December, Kiev was disbursed with the first tranche of $3 billion. However, stand-offs in the capital and other cities of Ukraine led to the toppling of President Viktor Yanukovych and Moscow rejected to finance Ukraine’s economy.
The IMF has been considering a bailout package of $14-18 billion for Kiev. To approve the financial aid, the IMF requires painful economic reforms of the Ukrainian economy.
For the first time, Kiev requested assistance from the IMF in 2008. Then the country was provided with the most part of the approved sum of $16.5 billion. In 2010, a new line of credit of $15 billion was open, within which Ukraine received $3.4 billion. After that, the IMF froze the aid being discontent with the economic policy of the nation.
The Ukrainian authorities refused to satisfy the Fund’s strict terms like raising gas rates for reduction of the budget deficit.