By Justin Sink - 03/27/14 07:20 AM EDT
The White House on Thursday applauded the International Monetary Fund’s announcement of an aid deal for Ukraine that should help Kiev avert default and stem the economic damage resulting from the country’s recent upheaval.
The Ukrainian government and the international lender agreed to terms on a two-year standby credit of $14 billion to $18 billion, conditioned on strict economic reforms.
The deal is still awaiting final approval from the IMF board, which is expected to come “in April, following the authorities’ adoption of a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” IMF mission chief Nikolay Gueorguiev said in a statement.
The agreement mandates that the Ukrainian government cut its budget deficit to 2.5 percent of its gross domestic product by 2016, shift to a flexible exchange rate in a bid to reduce inflation and phase out energy subsidies.
Ukraine’s already fragile economy, which was burdened by pension payments, runaway inflation, and a slumping coal and steel economy, has been further endangered by the recent political crisis. The annexation of the Crimean Peninsula by Russia has only deepened uncertainty and scared investors.
Ukrainian interim Prime Minister Arseniy Yatsenyuk conceded that the reforms were “very unpopular, very difficult, very tough” in a speech on Thursday, according to Bloomberg. But, he said, the government had to take steps that had been avoided for the past two decades to deal with the “great mess” left by pro-Russian former President Viktor Yanukovych.
“The country is on the edge of economic and financial bankruptcy,” Yatsenyuk said.
The agreement will also unlock an additional $2.2 billion in emergency aid from the European Union, which was contingent on the financial reforms.
In Washington, lawmakers in the House and Senate were working to pass legislation that would provide $1 billion in loan guarantees to Kiev, as well as impose sanctions on Russian officials. The bill could arrive on the president’s desk as soon as Thursday night.
Senate Democrats had wanted the legislation to include provisions that enhanced the IMF’s lending capacity but decided this week to drop the provision from the bill in the interest of moving forward quickly.
"We have to get IMF reform. But we can't hold up the other,” Senate Majority Leader Harry Reid (D-Nev.) said on Tuesday. "As much as I think a majority of the Senate would like to have gotten that done with IMF in it, it was headed to nowhere in the House."
President Obama heralded the loan program as a "major step forward" for Ukraine at a press conference in Rome on Thursday.
"This significant package of support is going to help Ukraine stabilize its economy and meet the needs of the Ukrainian people over the long term, because it provides the prospect for true growth," Obama said.
Obama said the reform efforts would require "courage," but said the moves were validated by the anti corruption protests that had gripped Kiev before Yanukovych fled to Russia last month.
He also said that stabilizing Ukraine's economy would allow the West to "hopefully influence Russian decision-making," amid concerns over the annexation and the possibility of additional incursions.
And Obama reiterated his call on Congress "to make sure that the United States does its part with an economic assistance package that helps support the Ukrainian people as they move forward."
Carney said the White House was working with Congress to move the legislation “quickly” and offering the Ukrainian government technical and financial assistance.
“We also remain committed to providing the IMF with the resources it needs — in partnership with Congress — to provide strong support to countries like Ukraine as well as reinforcing the Fund’s governance to reflect the global economy,” Carney said.