27 Oct 2008

IMF's multi-billion dollar loans to ailing European states

3:45 pm on 27 October 2008

The International Monetary Fund is to offer a $US16.5 billion loan to Ukraine and has agreed an as yet undisclosed package with Hungary.

Ukraine is to receive the loan to help it "maintain confidence and economic and financial stability", the IMF said.

The country has seen its stocks, banks and currency badly shaken by the global credit crunch.

The "substantial financing package" for Hungary is due to be finalised this week, the IMF said.

It is conditional upon Hungary adopting "strong policies" and will be drawn from the IMF, the EU, and some individual European governments "together with regional and other multilateral institutions", IMF Managing Director Dominique Strauss-Kahn said.

Hungary's currency, the forint, has seen a sharp fall, stocks have tumbled and the country has cut its growth forecast for 2009.

Internal political turmoil has delayed economic development in Ukraine and the IMF loan depends on the ex-Soviet state being able to balance its budget and make reforms to its banking sector.

"The authorities' programme is intended to support Ukraine's return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation," said Mr Strauss-Kahn.

"At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible."

Easy credit and a property boom have seen Ukraine's capital Kiev expand rapidly but the global downturn has seen investors and those willing to offer loans withdraw.

Ukraine also relies heavily on steel, but prices have collapsed and its currency, the hryvnia, has fallen sharply in the past two weeks.