Ukraine Parliament Gives Initial Approval to IMF Deal

KIEV, Oct 29 (Reuters) - Ukraine's parliament gave initial approval on Wednesday to legislation needed to secure billions of dollars in aid from the IMF after the central bank said failing to act could result in default and spiralling inflation.

The abbreviated, compromise package of measures won the backing of 248 members on first reading in the 450-seat chamber, which sat, for the first time in a week, free of protests over an early election. The second and final reading was scheduled for Thursday. As deputies debated moves to limit the effects of the world financial crisis, the hryvnia currency plunged to a record low.

Central bank chairman Volodymyr Stelmakh warned that failure to secure the $16.5 billion in credits would lead to "spiralling inflation, double-digit inflation -- very high. As well as moral discredit and declaring default".

The International Monetary Fund and Ukraine last weekend clinched a preliminary agreement on the credits, seen as vital to stabilise Ukraine's financial and banking system and shield the ex-Soviet state from the effects of the world-wide crisis.

Parliament's chairman, Arseniy Yatsenyuk, told deputies as debate got under way that extending the loan "depends on the actions of Ukraine's parliament. If we vote today, they examine it today. If we vote tomorrow, they examine it tomorrow."

Parliament had been deadlocked over President Viktor Yushchenko's dissolution of the chamber and call for a snap election in December. Prime Minister Yulia Tymoshenko, the president's estranged ally, denounces as "criminal" the notion of an election amid the world financial crisis.

Her supporters had blocked debate to guard against any attempt to finance the election. PM

Backs Compromise Package

Tymoshenko urged deputies to back the compromise package, intended to meet what are believed to be IMF demands. The Fund has not made public the details of any conditions. But IMF mission chief Ceyla Pazarbasioglu told reporters she was "very impressed" with plans to recapitalise banks and pursue a "very strong monetary and exchange rate policy, prudent fiscal policies".

"We think there is vision and foresight in terms of looking forward and understanding the challenges that the country may face and taking action to address those challenges," she said. She said the loan would come in tranches.

On the currency market, the hryvnia tumbled to 7.05/7.20 to the dollar despite new intervention, with the central bank offering to sell dollars at 5.7 against 5.5 on Tuesday. But central bank chief Stelmakh said that, subject to final agreement with the IMF, the hryvnia would be "no weaker" than 6.0 to the dollar by year-end. He said Ukraine's foreign debt situation was complicated by possible demands for early repayment of corporate loans in connection with recent downgrades of Ukrainian borrowers.

"If the IMF programme is confirmed, it will mitigate against any request for early return of credits in the corporate sector and allow for a balance between supply and demand," he said. "We took due account of this and that's why we approached the IMF."

The president's top economic adviser, Oleksander Shlapak, said low demand for key exports, like steel and chemicals, was likely to plunge Ukraine into recession next year. He predicted negative growth of 2 percent and a decreased pace of industrial output to a maximum 2 percent. The government's growth forecast for 2008 stands at 8 percent.

(Writing by Ron Popeski, editing by Andy Bruce) Keywords: UKRAINE IMF/ [e-mail] cmr COPYRIGHT Copyright Thomson Financial News Limited 2008. All rights reserved.

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