Page last updated at 03:09 GMT, Monday, 27 October 2008

IMF aid for Ukraine and Hungary

Man counts his cash in Ukraine
The Ukrainian currency has slumped in recent weeks

The International Monetary Fund (IMF) is to offer a $16.5bn (10.4bn) loan to Ukraine and has agreed an as yet undisclosed package with Hungary.

Ukraine is to receive the loan to help it "maintain confidence and economic and financial stability", the IMF said.

The country has seen its stocks, banks and currency badly shaken by the global credit crunch.

The "substantial financing package" for Hungary is due to be finalised in the next few days, the IMF said.

It is conditional upon Hungary adopting "strong policies" and will be drawn from the IMF, the EU, and some individual European governments "together with regional and other multilateral institutions", IMF Managing Director Dominique Strauss-Kahn said in a statement.

"The policies Hungary envisages justify an exceptional level of access to fund resources," he added.

Ukraine and Hungary are trapped in the vice of the last phase of deleveraging, or the reduction in credit being provided by banks and other investors, and the decline in the real economy
Robert Peston
BBC Business Editor

The BBC's Sarah Morris in Washington says this suggests the loan is likely to be one of the biggest the IMF has ever made.

Hungary's currency, the forint, has seen a sharp fall, stocks have tumbled and the country has cut its growth forecast for 2009.

Currency plunge

Internal political turmoil has delayed economic development in Ukraine and the IMF loan depends on the ex-Soviet state being able to balance its budget and make reforms to its banking sector.

Last week, the IMF said it was to give Iceland a 2.1bn loan as its banking system came close to collapse.

Pakistan and Belarus are also in talks about accessing IMF funding.

"The authorities' programme 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," said Mr Strauss-Kahn.

"At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible."

Easy credit and a property boom have seen Ukraine's capital Kiev expand rapidly but the global downturn has seen investors and those willing to offer loans withdraw.

Ukraine also relies heavily on steel, but prices have collapsed and its currency, the hryvnia, has fallen sharply in the past two weeks.

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