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IMF backs $3.9 billion loan for Ukraine

International Monetary Fund First Deputy Managing Director David Lipton (L), Managing Director Christine Lagarde (2nd L),IMFC Chair Agustin Carstens (3rd R) and IMF Secretary Jinhai Lin (R) listen to UN Secretary General Ban Ki Moon (2nd R) give a statment April 18, 2015 at the IMFC meeting at the 2015 IMF/World Bank Spring Meetings In Washington, DC. (Stephen Jaffe/International Monetary Fund)

This article was originally published by Radio Free Europe/Radio Liberty and is reprinted with permission.

The International Monetary Fund has approved a new $3.9 billion loan agreement for Ukraine, a small victory for President Petro Poroshenko ahead of the presidential election next year.

The fund’s decision, announced on December 18, includes a first installment of $1.4 billion that is expected by December 25. The fund’s board said decisions about the next remaining two installments would come in May and November.

Also on December 18, the World Bank announced a $750 billion loan guarantee to help Ukraine raise an estimated $1 billion in debt on international markets.

IMF aid had effectively been frozen since April 2017 due to the country’s sputtering efforts to implement major economic reforms and tackle corruption. That included overhauling the governance structure and payment systems for the state-owned gas company, Naftohaz.

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“Such decisions that come from leading world financial institutions ensure stability of our progress and strengthen resilience of Ukraine against severe internal and external challenges,” Poroshenko said in a statement.

Russia seized the the Black Sea peninsula of Crimea from Ukraine in March 2014, after pro-European protests known as the Maidan pushed Moscow-friendly President Viktor Yanukovych from power.

A war against Russia-backed separatists who hold parts of two eastern provinces has killed more than 10,300 people since April 2014, and persists despite a 2015 cease-fire and settlement deal known as Minsk II.

Tension has risen since Russian forces attacked three Ukrainian naval vessels near Crimea on November 25 and seized their 24 crewmen, who are now jailed in Moscow and facing trial. Kyiv and Moscow have exchanged accusations of plans for new hostilities in the coming weeks.

The IMF loan agreement “will provide an anchor for the authorities’ economic policies during 2019 and focus on maintaining macreconomic and financial stability,” the fund said in a statement.

It said the program would focus on priorities including reducing public debt and inflation, reviving bank lending, and “advancing a focused set of structural reforms, particularly to improve tax administration, privatization, and governance.”

The prospect of securing more IMF loans has allowed the government, which must service a rising debt burden next year, to seek new debt on world markets.

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It also opens the door for the European Union and other foreign donors to provide more aid.

Poroshenko is running behind in opinion polls ahead of the March 31 vote, as many Ukrainians have grown weary of promises to root out the country’s persistent corruption.

The World Bank suggested the loan guarantee it announced is aimed in part to support economic reforms and efforts to tackle problems that throw up barriers to economic progress, such as corruption.

“Overall, the reform program…addresses structural bottlenecks and sends a signal to investors about Ukraine’s ability to sustain reforms and address macroeconomic vulnerabilities ahead of the 2019 elections,” said Satu Kahkonen, World Bank country director for Ukraine.