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IMF To Loan Ukraine Billions To Cope With Global Crisis

The International Monetary Fund (IMF) says it will loan Ukraine more than $16 billion to help it cope with the global economic crisis.

The loan approval is the latest sign the IMF will try to play a fireman's role in rescuing emerging economies that are too weak to survive on their own.

The loan is to be used over the coming two years to bolster Ukraine's teetering banking sector.

IMF Managing Director Dominique Strauss-Kahn said on October 26 that Ukraine is to receive the loan "to maintain confidence and economic and financial stability."

Ukraine has seen its exports, stock market, banks, and currency all severely weakened in the global financial crisis.

Strauss-Kahn said the IMF loan should help to protect companies and families from an almost certain further deterioration of the country's economic condition.

"It will guard against a deep decline by insulating households and corporations to the extent possible," he said.

Fragility In Emerging Economies

Ukraine's economic fragility -- like that of many countries with emerging economies -- has been starkly exposed by the global economic downturn.

Prices for the country's major export, steel, have fallen amid diminishing demand from foreign buyers.

At the same time, foreign investors fleeing emerging markets have rushed out of Ukraine's stock market, helping to send it plummeting by 60 percent since the start of September.

And the global credit shortage -- which comes as international commercial banks hold on to their capital amid the crisis rather than loan it -- is severely limiting the ability of the Ukrainian government, firms, and banks to get new loans from abroad to finance their operations.

All these pressures have sent the national currency, the hryvnya, downward in recent weeks. It has fallen from an earlier rate of below five to the U.S. dollar to a rate of six on October 27.

Making things still worse is political turmoil in Kyiv, where President Viktor Yushchenko and his former ally Prime Minister Yulia Tymoshenko are again deadlocked in a power struggle. Their latest showdown has kept parliament in disarray for weeks.

Ihor Burakinskiy, director of the Institute for Economic Studies and Political Consultations, tells RFE/RL that the Ukrainian leadership is still far from working out a final anticrisis strategy.

"If we are talking about the plan as a document which has necessary support in the legislative body, in the sense of a draft law, then as of today such a plan does not exist," Burakinskiy says.

"There are a few documents prepared by the government and a document prepared by the Council of National Security and Defense" headed by President Yushchenko.
President Victor Yushchenko and Prime Minister Yulia Tymoshenko are locked in battle

Burakinskiy said there were currently at least six draft laws before the parliament. The parliament is scheduled to vote on October 28 on proposals for dealing with the financial crisis.

The IMF has yet to detail publicly what it will demand from Ukraine in exchange for helping to shore up its economy.

But Ukraine's National Bank and Finance Ministry have said the government will be expected to draw up a balanced budget and to introduce measures to support the country's banks.

More IMF Loans To Come

The IMF loan to Ukraine is the latest sign that the international lending agency is assuming a key role in the global economic crisis as a rescue service for economies too hard-hit to cope on their own.

The agency last week agreed to lend Iceland $2 billion as its banking system came close to collapse. That marked the first time the IMF had made a loan to a Western country in three decades.

More loans to more countries are likely to follow.

The IMF is now reported to be in the final stages of negotiating a loan to Hungary that could be the biggest loan by the agency ever.

The Hungarian currency has fallen and stocks have tumbled as the country has found it impossible to get new loans from overseas banks and financial institutions -- loans it depends upon for its economic performance.

And Belarus and Pakistan are also in talks with the IMF.

Amid all the seeking of loans, the global crisis shows no signs of diminishing soon.

Stock markets in Asia dropped sharply today as trading resumed after the weekend, prompting new alarm that the turmoil that started in the financial sector could move deeper into the wider global economy.

Speaking on October 27 to reporters in Tokyo, Japanese Prime Minister Taro Aso said: "If we don't do something significant now, the stock markets will have a major impact on the real economy. In that sense, we've got to think of all the ways we can do something now."

The stock market's volatility continues despite billion-dollar support packages announced in both the United States and Europe in recent weeks to stabilize the financial sector.

As one trader expressed it in India's financial center of Mumbai, "there is more pain left. The global turmoil does not appear to be resolving soon."

RFE/RL's Ukrainian Service contributed to this report