* Deal will unlock further credits to total $27 bln
* Intended to stabilise country after months of turmoil
* PM says country needs painful reform to stave off
(Adds parliament failing to pass law in paragraphs 4-5)
By Natalia Zinets
KIEV, March 27 The International Monetary Fund
has agreed a $14 billion-18 billion two-year bailout for
Ukraine, a deal to help it recover from months of turmoil that
will also unlock further credits making a total of $27 billion.
The agreement, announced on Thursday, is intended to help
the heavily indebted ex-Soviet republic stabilise its economy
after three months of protests that resulted in the overthrow of
pro-Russian President Viktor Yanukovich and prompted Russia to
annex Ukraine's Crimea region.
But the programme of reforms that accompanies the support
and which the IMF says is necessary to get the economy back on
track and avoid a debt default will be painful for the
population and the new government.
The Ukrainian parliament later on Thursday baulked at the
first attempt to pass a law approving the austerity measures
sought by the IMF, despite entreaties from Prime Minister Arseny
Parliament has to sign off on the conditions in the package.
Deputies were continuing discussions to try to find a
"The mission has reached a staff-level agreement with the
authorities of Ukraine on an economic reform programme," the IMF
said in a statement.
"The financial support from the broader international
community that the programme will unlock amounts to $27 billion
over the next two years. Of this, assistance from the IMF will
range between $14-18 billion, with the precise amount to be
determined once all bilateral and multilateral support is
Ukraine's debt insurance costs fell sharply after the deal
was announced, hitting two-month lows in the five-year credit
default swap market.
The agreement is also subject to approval by IMF management
and the executive board, which will consider it in April.
Conditions sought by the IMF include allowing the national
currency, the hryvnia, to float more freely against the dollar,
increasing the price of gas for the domestic consumer,
overhauling finances in the energy sector and following a more
stringent fiscal policy.
IMF mission chief Nikolay Gueorguiev said another important
step was to pass a law on public procurement aimed at
restraining corruption in the state sector and reducing state
Yatseniuk, who has dubbed his government a "suicide"
government because of the unpopular measures it will have to
take to right the corruption-ridden economy after years of
mismanagement, urged parliament to approve the measures.
"Ukraine is on the edge of economic and financial
bankruptcy," he said, warning that the price Ukraine will pay
for Russian gas supplies was expected to rise by nearly 80
percent from April to $480 per 1,000 cubic metres.
He said inflation in 2014 would be between 12 and 14 percent
and unless laws were passed to support the austerity measures
proposed by the IMF to stabilise the economy, GDP could fall 10
percent during the year and Ukraine could default.
STAVING OFF BANKRUPTCY
The previous, ousted government said the country of 46
million needed around $35 billion over two years to stave off
It faces about $10 billion in repayments on its foreign
currency debt this year, excluding the several billion dollars
it will require for gas imports from Russia. In June, it will
have to pay out on a maturing $1 billion eurobond.
In a move on Wednesday seen as a gesture by Kiev to secure
the IMF package, the government said it had agreed to raise the
price of gas to the domestic consumer - a long-standing demand
by the Fund - by more than 50 per cent from May 1.
This was an unpopular condition for IMF aid that Yanukovich
had refused before he was ousted last month.
"Following the intense economic and political turbulence of
recent months, Ukraine has achieved some stability, but faces
difficult challenges," the IMF statement said.
Announcing the agreement in the Ukrainian capital, Kiev,
Gueorguiev declined to say how big the initial tranche of aid
Kiev has said it desperately needs cash to cover expenses
and avert a possible debt default. The country's finance
minister has predicted the economy will contract 3 percent this
The bailout from the IMF will clear the way for several
billion dollars in aid from the United States, European Union,
Japan and other nations.
(Additional reporting by Pavel Polityuk and Alessandra
Prentice; Writing by Richard Balmforth; editing by Anna Willard
and Will Waterman)