IMF to loan $16.5 billion to the Ukraine

Sources: IMF Survey: IMF set to Lend $16.5 Billion to Ukraine

Wall Street Journal: IMF Unveils Ukraine Bailout; Approval Hangs on New Laws

The IMF announced today that it has entered into an agreement to lend $16.5 billion to the Ukraine, contingent on the Ukrainian government’s willingness to impose restrictive economic measures on the nation.  This announcement closely followed the IMF’s agreement to loan $2.1 billion to Iceland and is part of the IMF’s stated commitment to use its $200 billion in loanable funds to lend quickly to member countries needing assistance during the global financial turmoil.

The IMF decision to lend more than earlier estimates had indicated came in the face of ratings agency Standard & Poor’s cut in the Ukraine’s currency rating on Friday.  S&P made the cut despite its belief that an IMF loan was in the works because of the possibility that the Ukrainian government would be unable to reach an agreement on the required economic measures.

While it remains to be seen if the government will be able to agree on the necessary policies, one thing is clear—the Ukraine needs the money to avoid defaulting on its loans.  The Ukraine carries a very large external debt load and the current crisis, as well as a drop in the price of steel (one of the nation’s main industries) has threatened its ability to meet its payment obligations.  Even the IMF’s large loan seems small in comparison to the roughly $50 billion the Ukraine must pay back in 2008.  The IMF says that the proposed policy package would restore financial stability, help the country meet its payment obligations, and inject liquidity into banks to prevent further problems.

Discussion:

Is the amount of the IMF’s loan to the Ukraine surprising?  What are the advantages and disadvantages of imposing strict economic policies in a time of global economic downturn?  What other countries might be next in line to receive IMF aid?