IMF approves $16.4B emergency loan for Ukraine

WASHINGTON - The International Monetary Fund approved $16.4 billion in emergency funding for Ukraine on Wednesday to stabilize the nation's economy that's being pummeled by falling export values, rising inflation and the affects of the global financial meltdown.

The two-year agreement allows the Eastern European country to receive $4.5 billion immediately in exchange for agreeing to a series of financial reforms. Among them are agreements governing flexible exchange rates, higher funding for unemployment insurance and banking recapitalization.

"The Ukrainian economy, especially the banking system, is experiencing considerable stress," IMF deputy managing director and acting chairman Murilo Portugal said in a statement. "Falling prices for Ukraine's major export, steel, have led to a substantial deterioration in Ukraine's current account outlook."

The nation of nearly 46 million people sandwiched at the crossroads of Europe and Asia has seen its overheated economy suffer in recent months along with other economies around the globe.

That's because falling world stock markets are causing many investors to withdraw money from emerging markets, sending currencies into a tailspin. Meanwhile, tight credit from strapped banks and lending markets make it difficult for those countries to obtain financing on their own.

Portugal said Ukraine's economy has been plagued by rising inflation, low foreign exchange reserves, a drying up of liquidity and reduced access to international financial markets.

In September, Ukraine's manufacturing sector contracted 5 percent.

The IMF forecasts Ukraine will sink into recession next year, with economic output falling 3 percent, but hopes the financing arrangement will temper inflation, which is expected at 25.5 percent this year.

If the global economy recovers in the second half of 2009, the IMF said the Ukrainian economy could reach a growth rate of 5 to 6 percent in 2011.

The IMF has already agreed to lend Iceland $2.1 billion and is in talks with Hungary for an estimated $10 billion to $12.5 billion in loans.

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