Ukraine embraces IMF with plans for new age of austerity

Ukraine expects to receive the first chunk of a 11.5 billion euro ($15 billion) loan after agreeing to impose tough austerity measures.

A condition of the International Monetary Fund (IMF) loan is that the country's government must impose a raft of unpopular measures to reduce its budget deficit. The measures include increasing gas tariffs and raising the retirement age.

"Ukraine will ... diligently meet all the obligations it has taken on," a statement from the Ukrainian government said.

Bildunterschrift: Großansicht des Bildes mit der Bildunterschrift:  President Yanukovych aimed to fix links with the IMF

The former Soviet republic is recovering from a crippling recession, with the economy shrinking by 15 percent last year. Earlier this year, a 12.5 billion euro funding agreement from 2008 was suspended when Ukraine passed a law that raised minimum wages and pensions, despite opposition from the IMF.

Priority since taking office

Ukrainian President Viktor Yanukovych, elected in February, has made restoring relations with the IMF a priority since taking office.

"Ukraine is emerging from a difficult period during which the economy was severely hit by external shocks and exacerbated by domestic vulnerabilities," said John Lipsky, deputy managing director of the IMF.

"The authorities are committed to addressing existing imbalances and putting the economy on a path of durable growth, through important fiscal, energy, and financial sector reforms," he added.

The IMF deal requires Ukraine to keep its budget deficit within 5.5 percent of gross domestic product this year and cut it to 3.5 percent next year.

Author: Richard Connor (Reuters/AFP/dpa)
Editor: Rob Turner