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IMF Puts Conditions On Third Ukraine Loan Tranche

The head of IMF mission in Ukraine, Ceyla Pazarbasioglu, said a "staff-level agreement" had been reached after a two-week mission punctuated by "long, difficult discussions."
KYIV, July 16 (Reuters) -- The International Monetary Fund (IMF) has said Ukraine would get a third tranche of its loan provided the country's authorities met conditions including winning parliament's approval to amend banking legislation.

The IMF's Ukraine mission chief, Ceyla Pazarbasioglu, said the IMF's Executive Board would make a decision on the $3.3 billion tranche within three to four weeks and expected "prior actions" undertaken by Ukraine to be completed by that time.

She praised the government and central bank for creating financial stability and improving the banking sector's outlook.

But she urged parliament -- its work paralyzed for weeks by opposition protests -- to approve amendments to banking legislation, and said Ukraine, gripped by almost continuous political upheaval for more than four years, needed a "strong political consensus" in the run-up to a presidential election.

Seated alongside Prime Minister Yulia Tymoshenko, the mission chief said a "staff-level agreement" had been reached after a two-week mission punctuated by "long, difficult discussions."

Ukraine, whose economy shrank more than 20 percent in the first quarter of 2009, clinched the $16.4 billion loan deal with the IMF late last year.

Pazarbasioglu told a news conference her team would now start the process of making a recommendation about the third loan tranche.

"The next tranche is about 3.3 billion," she said. "And as I said before, it will be considered by the Executive Board upon completion of prior actions."

Conny Lotze, an IMF spokeswoman accompanying the mission, said by telephone: "There are a few things that have not been gone through, like the amendments to the bank resolution process. Basically these things need to be done before the Board can convene and make a decision to approve the review."

Foreign Debt, Fiscal Deficit

Tymoshenko told reporters that $1.9 billion of the proposed disbursement would be used to meet foreign debt commitments.

"Of this sum, it is quite clear that $1.9 billion will be allocated to making the latest scheduled payment of Ukraine's foreign debt," Tymoshenko said. "This will remove in full all risks concerning the payment of Ukraine's foreign debt."

The IMF disbursed a loan tranche of $4.5 billion soon after the initial deal, but the second tranche of $2.8 billion was delayed for about three months in differences over policy.

Pazarbasioglu said government and central-bank policies had "allowed the country to manage the crisis and led to stability in the financial system".

Joint action had enabled authorities "to resolve the problems of banks like those that have been recapitalized recently".

She said the IMF was now predicting a budget deficit of 6 percent of gross domestic product (GDP) against earlier estimates of 4 percent to take account of the difficulties of state energy company Naftogaz.

She also confirmed changes to growth forecasts, saying the IMF now saw GDP falling by about 14 percent this year.

The mission chief said Ukraine's disparate political groups had to forge a consensus to make the program work.

"The successful implementation of the program will require strong political consensus and commitment at all levels," she said.

She said it was "extremely important" for parliament to proceed with the promised amendments to the banking sector, which "will give the necessary instruments and tools for effective programs to strengthen the banking system."