US signs US$1b loan guarantee for Ukraine

[WASHINGTON] The United States signed Monday its second US$1 billion loan guarantee deal for Ukraine aimed at helping the crisis-wracked country surmount a Russia-backed insurgency and rebuild its tattered economy.

The US loan guarantee agreement is part of a US$7.5 billion package of support for Ukraine over the coming year from its bilateral and multilateral partners, the Ukrainian finance ministry said.

"On behalf of my government and the people of Ukraine, I want to offer our sincere thanks to the United States for their continued and unwavering support. This loan guarantee is a cornerstone of that support and comes at a critical time for our country," said Finance Minister Natalie Jaresko in a statement.

With the US guarantee, market participants will view the risk of Ukrainian Eurobonds at the high credit rating of US sovereign debt.

US Treasury Secretary Jacob Lew said that the US$1 billion loan guarantee underscores Washington's continued support for the economic reform agenda of the Ukrainian government of President Petro Poroshenko.

"Since we signed our first loan guarantee agreement one year ago, Ukraine has worked closely with the IMF, the World Bank, the United States, and other members of the international community to implement a robust reform program that will help stabilize Ukraine's economy and lay the groundwork for future growth and prosperity," Mr Lew said in a statement.

"Ukraine has taken critical reforms already, and its commitment to making a decisive break with the corruption and stagnation of the past is clear. This progress must continue so that the people of Ukraine can realize the prosperity and stability they deserve."

The loan announcement came as Ukraine is in difficult negotiations with private creditors to restructure US$15 billion in debt, a key step of its US$40 billion international bailout orchestrated by the International Monetary Fund.

The debt restructuring is needed to pass the first review of the IMF's US$17.5 billion portion of the bailout that would unblock the next tranche of the institution's aid.

Ukrainian forces have been battling pro-Russian separatists since April 2014 in eastern Ukraine in a bid to prevent the secession of the Russian-speaking regions of Donetsk and Lugansk.

The West and Kiev have accused the Kremlin of instigating the insurgency and supporting militants with weapons, funds and troops. Moscow has denied the claims. A tenuous February truce was broken by more violence Monday that claimed the lives of at least four Ukrainian servicemen.

Torn apart by the insurgency in its industrial east and economic crisis, Ukraine's debt has exploded to almost 100 per cent of its gross domestic product. The economy shrank 17.6 per cent in the first quarter from a year ago.

AFP