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IMF releases US$1b loan for cash-strapped Ukraine
[KIEV] The International Monetary Fund will release the next US$1 billion loan payment to Ukraine, which had been postponed following the blockade imposed on the separatist east of the country, the Ukrainian president said Monday.
"The IMF board took the decision to grant Ukraine one billion dollars," President Petro Poroshenko wrote on his Facebook page, seeing it as "another sign of the reforms under way in Ukraine."
Cash-starved Ukraine has been desperately waiting for the next instalment from a US$17.5 billion rescue programme that has been held up repeatedly since it was agreed in 2015 over delays by Kiev to carry out reforms.
Monday's announcement brought total funds disbursed under the arrangement so far to about US$8.4 billion.
The IMF had delayed its decision on the latest loan instalment, originally scheduled for March 20, saying it needed to reassess the "implications of recent developments for the programme".
The postponement came after Kiev's pro-Western leadership in March imposed a trade blockade on Russian-backed, rebel-held eastern regions. Kiev took the drastic step after rebels seized dozens of Ukrainian-owned businesses on their territory in response to a trade blockade by nationalist protesters.
The IMF programme is intended to help stabilise the country after the 2014 ouster of pro-Russian President Viktor Yanukovych.
The head of Ukraine's Independent Association of Banks in Ukraine Roman Shpek has said that nearly all the money would go into refinancing the former Soviet republic's outstanding debt to the IMF.
David Lipton, acting chair of the IMF board and first deputy managing director, praised what he said had been "decisive" action by Kiev on economic policy, adding that the country was showing welcome signs of recovery.
However, Mr Lipton said Ukraine still needed to speed up structural reforms - such as privatisation and creating a market for farmland - to attract investment.
"Corruption needs to be tackled decisively. Despite the creation of new anticorruption institutions, concrete results have yet to be achieved," Mr Lipton said in an IMF statement announcing the release of the funds.
"Notwithstanding the large fiscal adjustment, public debt remains high." While the central bank, the National Bank of Ukraine (NBU), had skillfully overseen monetary policy during "a very challenging period," Lipton said, its independence had to be safeguarded to contain inflation and build foreign reserves with flexible exchange rates.
VOTE OF CONFIDENCE
Valeria Gontareva, governor of the NBU, called Monday's decision "a real vote of confidence."
Ukraine suffered a deep decline after the outbreak of war in 2014, with the economy contracting nearly 15 per cent in 2014 and 2015.
Per capita gross domestic product in Ukraine is only 20 per cent of the European Union average, according to the IMF.
The economy expanded by 1.8 per cent in 2016 and is forecast to grow by 1.9 per cent this year, according to the central bank.
But the NBU cut its 2017 growth forecast by nearly a full percentage point as a result of the trade blockade, saying it could depress metal exports from the eastern regions and expand the current accounts deficit by more than 25 per cent to US$4.3 billion.
The blockade has also hit key industries, including coal production, requiring coal imports and increasing the risk of power cuts.
However in a statement on Monday, the central bank said IMF experts had concluded the blockade would have a "relatively moderate impact" on growth and the balance of payments while not putting the bank's inflation target at risk.
The central bank's Gontareva also said the IMF decision reflected Ukrainian efforts to clean up its banking sector and called it a warning to others whom she did not name.
"This will send a clear message to those who have sought to unlawfully exploit the banking sector to their own advantage," Mr Gontareva said in the statement.
The central bank in recent months has expressed frustration, accusing bank owners of manipulating the legal system to reopen capital-weak "zombie banks" that the central bank already had ordered shut down.
One recent round of stress tests found that 28 of 39 lenders were not sufficiently capitalised to withstand the next economic crisis.