Ukraine welcomes $4.5bn stand-by IMF loan

Ukraine will receive initial loans worth $4.5bn in the next few days to bolster the crisis-hit economy under the International Monetary Fund`s bail-out package, say officials in Kyiv, The Financial Times reported.

Victor Yushchenko, the president, welcomed the IMF decision on Wednesday to approve its $16.5bn (£10.5bn, ?13bn) bail-out package, calling it a "signal to the international community to boost the rating of trust in our country". Yulia Tymoshenko, the prime minister and the president`s bitter rival, called the loan a "great victory" that would allow Ukraine to "completely stabilise" its financial system.

The IMF approved the stand-by loan after Kyiv`s fractious parliament passed enabling legislation. The IMF decision, together with news that cash-rich investors were close to rescuing two troubled Ukrainian banks, were welcomed in financial markets as moves that could mitigate the impact of the global crisis.

The IMF move follows declines in central bank reserves from $38bn to $31bn after heavy currency market intervention. The hryvnia, which gained 17 per cent, reaching 5.82 to the US dollar on Wednesday - compared with an all-time low of 7 in late October - edged up yesterday and closed at 5.79.

The IMF said the funds would help Kiev overcome the impact of "global deleveraging and a domestic crisis of confidence". In return, Ukraine has committed itself to adopting a flexible exch-ange rate regime, recapitalising banks, reducing its bud-get deficit to zero in 2009 and tightening monetary policy.

The IMF forecast a sharp recession next year, with output dropping 3 per cent compared with expected 6 per cent growth this year, as Ukraine struggles to cope with a fall in demand for steel and chemicals, pressure to fund imports and problems refinancing foreign loans.

The IMF loan is expected to help Kiev bail out some of its 170 banks. In October, the central bank rescued Prominvestbank, the sixth largest, after a hostile take-over attempt triggered a run on deposits.

This week, two consortia backed by Russian and Ukrainian investors have been competing to purchase Prominvestbank. *Hungary has announced a Ft600bn (£1.8bn) package to streng-then its largest banks. Andras Simor, central bank governor, said the funding, for which banks could apply in exchange for partial state ownership, would reassure markets, allowing banks to borrow more cheaply. The package will be financed using the IMF`s $12.5bn credit line.