Washington: The IMF unveiled two new members of a growing band of countries set to receive its help in the financial crisis on Sunday, announcing a $16.5 billion loan for Ukraine and a “substantial” package for Hungary.
The deals, made public by IMF director Dominique Strauss-Kahn, followed a $2.1 billion loan to Iceland on Friday and came amid appeals for assistance from other countries, including Belarus and Pakistan.
“An IMF staff mission and the Ukraine authorities have today reached agreement ... on an economic program supported by an SDR 11 billion ($16.5 billion) loan,” Strauss-Kahn said in a statement.
The Washington-based institution, which some analysts had warned risked obsolescence before the financial crisis blew up, has said it can provide up to $200 billion in loans to countries facing financial difficulties.
“The IMF is moving expeditiously to help Ukraine, and this program is focused on the essential upfront measures needed to maintain confidence and economic and financial stability,” the IMF chief said in his statement.
For Hungary, Strauss-Kahn said a “substantial financing package” would be announced for the country in the next few days, with contributions from the IMF, European governments and other partners.
The IMF chief said assistance would be provided after “broad agreement on a set of policies” to be carried out by the Hungarian government, which are expected to include tight limits on government spending.
“The policies Hungary envisages justify an exceptional level of access to Fund (IMF) resources,” Strauss-Kahn said.
Final approval for help to either country is required from the IMF board, Strauss-Kahn underlined.
Both Hungary and Ukraine have been swept up in the financial crisis.
Ukraine stopped early withdrawals from savings accounts this month in a bid to halt a run on banks. The central bank has bailed out several banks and the Ukrainian stock market has lost more than 70% of its value this year.
The vast former Soviet country is getting less money from its main export, steel, because of a slump in global demand, and is using up foreign currency reserves to support its currency, the hryvnia, analysts say.
These factors could lead to problems for the government to pay back some of the foreign loans that have helped boost Ukraine’s economy in recent years as well as to make up for budget deficits.
Furthermore, a feud between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko over the president’s decision to call fresh elections risks exacerbating the country’s deep economic problems, analysts say.
Ukraine’s Finance Minstry welcomed the IMF’s support, saying it “opened a door to Ukraine’s speedy cooperation with other international financial organizations” and bolstered private investors’ confidence in the country’s banking sector.
Hungary’s vulnerability is primarily due to a large current account and budget deficit, a partially overvalued currency, a low stock of foreign reserve and a high level of short-term foreign currency debt, analysts say.
Facing a sharp fall in the national currency, the forint, the country’s central bank decided last Wednesday to raise its key interest rate by three points to 11.5%.
Officials have vehemently rejected comparisons between Hungary and Iceland, which faced bankruptcy due to the collapse of its supercharged financial sector.
On a busy day for the IMF, the outcome of an investigation into possible harassment and favoritism by Strauss-Kahn was made public following an affair he had with a former colleague.
The IMF executive board cleared him, saying a probe had “concluded that there was no harassment, favoritism, or any other abuse of authority by the managing director.
In a teleconference with the press, IMF executive director Shakour Shaalan said that the board had unanimously accepted Strauss-Kahn’s apologies and that it would continue to work with him.
The investigation had been an unwelcome distraction for Strauss-Kahn and the IMF at a time when the institution was being promoted by some as a global body that should be strengthened to police financial markets.
German Chancellor Angela Merkel became the latest proponent on Friday when she called for “better international coordination” and “a strengthening of the role played by the IMF in ensuring stability of the global financial system.”
The IMF is one of the cornerstones of the Bretton Woods system that has governed global finance since World War II. It serves as a lender of last resort to cash-strapped countries and monitors capital flows.