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LONDON – After three weeks of urgent negotiations with the interim government of Ukraine and in an atmosphere of great power competition, the International Monetary Fund on Thursday announced an agreement to provide up to $18 billion in loans over two years to prevent the country’s default.
The agreement, announced in Kiev, the Ukrainian capital, will hinge on the country taking steps to let the value of its currency float downward, to cut corruption and red tape, and, crucially, to reduce huge state subsidies for the consumption of natural gas. The energy subsidies alone represent roughly 8 percent of Ukraine’s gross domestic product, and Russia has said that it intends to raise on April 1 the price of natural gas to Ukraine, which is largely dependent on Russian supplies and which already owes the Russian energy company Gazprom more than $1 billion.
The deal, which is subject to the approval of the fund’s board next month, is intended to get the new government over a big hurdle of coming debt obligations when its hard-currency accounts have been sharply diminished by months of unrest that led to the overthrow of former President Viktor Yanukovych.
The two-year loan package, the IMF said in a statement, is expected to unlock more loans, including from the United States and the European Union, that should bring the total over two years to $27 billion. The loans will be more spread out and less onerous than the $15 billion that Russia had promised Yanukovych before he fled the country.
The fund’s mission chief, Nikolay Gueorguiev, declined to say how big the initial tranche of aid would be. He said he expected the board to approve the deal by the end of April.
Ukraine’s interim prime minister, Arseniy P. Yatsenyuk, told the Parliament on Thursday that the country was “on the brink of economic and financial bankruptcy” and that gross domestic product could drop 10 percent this year unless urgent steps were taken in conjunction with the fund.
The measures could damage the new government’s popularity at a time when it is struggling to establish itself after losing territory to Russian forces and before emergency presidential elections scheduled for May 25.
Yatsenyuk announced new legislation to prevent “financial disaster” in Ukraine, including provisions that would freeze the minimum wage and raise taxes on the country’s largest businesses, which in many cases have effective monopolies.
