By Dmitry Zaks
Kiev (AFP) – The International Monetary Fund announced on Thursday a $14-$18 billion bailout for Ukraine that requires the crisis-hit country to pursue painful and unpopular reforms to avert bankruptcy amid its escalating standoff with Russia.
The vital pledge of Western support for the untested leaders who last month toppled a pro-Kremlin regime came amid growing worries about a rapid Russian buildup at Ukraine’s eastern border that one Kiev official said has now reached 100,000 troops.
German Chancellor Angela Merkel said on Thursday she hoped the threat of further sanctions would be enough to keep Russia’s expansionist ambitions in check following its annexation of Crimea — an incursion that has left the Kremlin more isolated from the West than any stage since the 1989 fall of the Berlin Wall.
Washington and its EU allies now hope that the rescue package and diplomatic offensive against Russia should keep Ukraine on a stable enough footing to conduct snap presidential polls on May 25 that could help unite the culturally splintered country behind one democratically elected leader.
The political season formally opened in Kiev with the announcement by the divisive opposition icon Yulia Tymoshenko that she intended to contest the race to see who will replace the ousted pro-Russian president whose regime sent her to jail.
But polls suggest that the 53-year-old former premier will have a tough time beating Petro Poroshenko — a billionaire also known as the “chocolate baron” who stood at the barricades during three months of deadly Kiev protests against Viktor Yanukovych’s rule.
Kiev’s International Monetary Fund agreement — worth the equivalent of 10.8-13.1 billion euros — imposes tough economic conditions that will alter the lives Ukrainians who have grown accustomed to the comforts of Soviet-era subsidies and welfare benefits.
But it also appears to herald a fundamental shift from a reliance in Kiev on Russian help to save a crumbling system to a commitment to the types of free-market efficiencies that could one day bring Ukraine far closer to the West.
“This significant support will help stabilize the economy and meet the needs of Ukrainian people over the long term because it provides the prospect for true growth,” U.S. President Barack Obama said in Rome.
The Fund’s rescue will form the heart of a broader package released by other governments and agencies amounting to $27 billion (19.6 billion euros) over the next two years.
The IMF has made an immediate end to Ukraine’s costly gas subsidies its main condition for the program’s approval.
It also wants the central bank to stop propping up the Ukrainian currency and for the government to cut down on corruption and red tape.
The Fund’s Ukrainian mission chief Nikolai Georgiyev called these steps “the foundation for stable and sustainable growth.”
The agreement was unveiled one day after Ukraine’s state energy company Naftogaz said it would increase domestic heating gas prices by 50 percent on May 1.
Ukraine’s central bank has already limited its currency interventions — a decision that has resulted in the hryvnia losing about a third of its value against the dollar since the start of the year.
The Fund’s package became essential for Ukraine once Russia froze payments on a $15 billion (10.9 billion euro) loan it awarded Yanukovych for his decision to ditch an historic EU trade and political relations pact.
Prime Minister Arseniy Yatsenyuk has now made sure that Ukraine will be getting even more money from the West after earlier signing the political portion of the EU deal ditched by Yanukovych — moves that are likely to further unsettle the Kremlin.
One of Yatsenyuk’s main outstanding worries is that higher gas prices and limited state subsidies will most dramatically impact the big steel mills and other heavy industries that dot the heavily Russified southeast of the vast nation of 46 million people.
Big eastern cities such as Donetsk and Kharkiv have recently witnessed bloody protests against the pro-European authorities in Kiev that rely on political backing from the ethnic Ukrainian west.
“Many of these reforms will be unpopular or will run into opposition from vested interests,” the London-based Capital Economics consultancy warned.
The United States has betrayed growing unease about the steadily growing presence of Russian soldiers at Ukraine’s eastern border — a buildup that is putting psychological pressure on the interim government and leaving Western leaders guessing about the Kremlin’s next move.
U.S. Defense Secretary Chuck Hagel noted on Wednesday that “they continue to build up their forces” despite Russian Defense Minister Sergei Shoigu’s assurance that no broader invasion of Ukraine was planned.
Ukraine’s National Security and Defence Council chief Andriy Parubiy on Thursday put the figure of Russian soldiers around Ukraine at “almost 100,000”.
“Russian troops are not in Crimea only, they are along all Ukrainian borders. They’re in the south, they’re in the east and in the north,” Parubiy said.
There was no initial response to Parubiy’s comments from Russia.