WASHINGTON/KYIV (Reuters) -- The International Monetary Fund (IMF) and Ukraine said on October 26 they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis.
"An IMF staff mission and the Ukraine authorities have today reached agreement, subject to approval by IMF management and the executive board, on an economic program supported by a $16.5 billion loan under a 24-month stand-by arrangement," IMF Managing Director Dominique Strauss-Kahn said in a statement.
"Consideration by the board would follow approval of legislative changes to Ukraine's bank resolution program," he added.
The agreement with Ukraine follows a $2.1 billion IMF package for Iceland on October 24 and further announcements are expected as talks with Hungary advance, as emerging markets turn to the IMF to prop up their financial sectors.
A joint statement by Ukraine's Finance Ministry and central bank said the approval of the IMF aid package depends on the passing of economic policy measures to address balance of payments issues, as well as setting a balanced budget and introducing reforms to support the banking sector.
"These include legislative changes which must be adopted very soon by Ukraine's parliament," the joint statement said.
"Support from the IMF opens the way for cooperation with other financial organizations as well as bilateral cooperation, will boost trust among private investors and ensure stable operations in the banking sector," it added.
The crisis has put pressure on the hryvnia currency, which lost about 20 percent of its value in a week and raised doubts over the ability of banks to refinance debt.
The country's parliament has been thrown into disarray over proposals to combine debate on the financial crisis with measures to finance an early elections called by President Victor Yushchenko.
Yushchenko dissolved parliament this month and called a December 7 election, but lifted the dissolution this week and said he was pushing the vote back for a week to December 14. It is now unclear when exactly the vote will take place.
The Washington-based lender said its staff in Kyiv and Ukraine authorities had reached an agreement on a package that would meet the balance of payments needs created by the combined effects of the collapse of steel prices and the global credit turmoil.
"The authorities' program 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," Strauss-Kahn said. "At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible."
He said the package was equivalent to 800 percent of Ukraine's quota at the fund. Each IMF member country is assigned a quota based on its size in the world economy and determined the amount of money it can lend. Under normal IMF lending program, countries can draw up to 300 percent, or three times, their quota.
"The strength of the program justifies the high level of access," Strauss-Kahn added.