The International Monetary Fund board on Wednesday approved a two-year, $17 billion loan package for cash-strapped Ukraine as it seeks to regain stability following Russia's annexation of Crimea.
The IMF assistance pledged in March was hinged on economic reforms in Ukraine, including raising taxes, freezing the minimum wage and raising energy prices — all steps that could hit households hard and strain the interim government's tenuous hold on power.
"Urgent actions were necessary. Urgent decisions were taken by Ukraine and decisions now have just been taken by the IMF," IMF Managing Director Christine Lagarde told reporters at the monetary fund's headquarters.
Ukraine's interim government finds itself caught between the demands of international creditors and a restive population that has endured decades of economic stagnation, corruption and mismanagement.
The IMF's decision to approve the $17 billion loan paves the way for Ukraine to receive $15 billion in additional assistance pledged by the World Bank, the European Union, Canada, Japan and other European entities, and $1 billion in loan guarantees from the U.S. that Congress recently approved. As part of the deal, Ukraine will be required to use some of the $17 billion loan to repay money it already owes the monetary fund.
Ukraine, a nation of 46 million, is in turmoil after Russia annexed Crimea. Russian President Vladimir Putin has massed 40,000 troops on Russia's border with Ukraine in what many fear is the first step to an invasion. Russia's actions have created a standoff with the United States and many European nations.
"Today's final approval for the $17 billion IMF program marks a crucial milestone for Ukraine," Treasury Secretary Jacob Lew said in a statement. "The IMFprogram, in conjunction with bilateral assistance from the United States and other nations, will enable Ukraine to build on the progress already achieved to overcome deep-seated economic challenges and help the country return to a path of economic stability and growth."
Lagarde said there were risks to the IMF loan but that Ukraine had demonstrated during the past few weeks that it can undertake reforms, such as ones addressing its exchange rate and the price of natural gas. "We believe that Ukraine has an opportunity to seize the moment," she said.
Asked about recent sanctions that the U.S. and European Union have imposed on Russia, Lagarde said only that the IMF was not designing sanctions, but was trying to improve the situation in Ukraine so that stability can be restored.
"We very strongly encourage the parties to negotiate to come to terms, and whether it's a question of the future price of gas, the payment of arrears — we very much hope the partners will find an agreement," she said.