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Monday, 14 February, 2000, 17:35 GMT
Ukraine faces IMF probe

Leonid Kuchma Kuchma's government is alleged to have abused IMF cash

The International Monetary Fund arrives in the Ukraine on Monday to discuss whether it should resume lending to the cash-strapped country.

The IMF suspended its $2.6bn loan programme to the Ukraine last September when it failed to meet the Fund's demands.

Since then, allegations that President Leonid Kuchma's government misused $613m of IMF cash have come to light.

With just $1.7bn in reserves and $3.1bn of debt payments to make this year, the Ukraine has also been forced to plead with investors for longer to repay its debt.

The Ukraine hopes it will receive at least $300m from the IMF by March.

High-risk investments

The Financial Times alleged in January that members of President Leonid Kuchma's government had diverted $613m of IMF money in 1997.

"In 1998 we discovered that some of the Ukrainian reserves were used for other purposes," IMF deputy chief Stanley Fischer has admitted.

The IMF has asked the government, which denies all allegations of impropriety, to widen its investigations.

"There were no secret operations," Prime Minister Yuschenko told journalists on Monday.

Viktor Kushchenko PM Yuschenko was previously at the central bank

He added that since September, all financial operations have been audited, with the reports then passed on to the IMF.

Paying back debt later

As part of the crisis, the Ukraine also wants to delay payment on its debts to private investors due this year.

Ukraine follows moves made by other emerging market countries, such as Russia, Pakistan and Ecuador, to try and restructure their international bonds.

Prior to the Asian crisis, many investors had assumed that in a case of near-default, international agencies would step in to help out investors.

Now, the IMF insists private investors must share with official creditors part of the burden of a debt default and subsequent restructuring.

Ukraine hopes to delay paying off its debt.

Otherwise, repaying the debt will put a huge strain on the country's reserves.

With $1.7bn in official reserves, Ukraine has to pay back $3.1bn in debt this year.

Many observers say that the IMF will not release more money, unless investors agree to the Ukraine debt plan.

Suspended aid

The IMF has been trying to reach agreement with the Ukraine since the summer.

The two sides failed to reach agreement following the Fund's last visit in December, as this year's budget hadn't been passed yet.

As an extra pacifier for the IMF, the country plans to raise $3.0bn through privatisation between 2000 and 2002.

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