Jean-Claude Juncker proposes further €1.8bn aid for Ukraine
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Jean-Claude Juncker, the European Commission president, proposed a third EU bailout programme for Ukraine on Thursday, urging approval of another €1.8bn in aid.
The package still needs the approval of EU member states, where willingness to loan Kiev additional funds has cooled amid concerns that the Ukrainian government has not lived up to its economic reform commitments. But it sparked a rally in Ukrainian bonds, on hopes that the EU move could unlock funding from other sources to ease the country’s financial crisis.
The news came as International Monetary Fund officials began talks on Thursday with the new government in Kiev as part of a review of its existing programme and Ukraine’s reform agenda, over which there have been differences.
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Ukraine won agreement on a $17bn IMF bailout in April, topped up to $27bn including contributions from other donors. But because of the country’s weakening economy, a $15bn budget gap has opened up, prompting the fund to hold off distributing its latest aid tranche until it is filled.
Ukrainian output fell more than 7 per cent last year after Russia annexed the country’s Crimean peninsula and the civil war in eastern Ukraine, which previously accounted for about a sixth of the economy. The national currency, the hryvnia, plunged in value and foreign currency reserves fell last month to $9.96bn, or six weeks of import cover — less than half the level generally regarded as a prudent minimum.
The output of coal, which is concentrated in the east, fell 22 per cent last year according to rough estimates, the energy and coal ministry said on Thursday.
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The European Commission said if the €1.8bn funds were approved, disbursement would be contingent on Kiev getting agreement on further tranches of its $17bn IMF bailout.
“As always, solidarity goes hand in hand with commitment to reform, which is urgently needed in Ukraine,” Mr Juncker said. “We want to help the Ukrainian government to put its reform agenda into practice and trigger real change for the country and its people.”
The third programme would more than double the EU’s assistance to Kiev. The first two, known as macro-financial assistance, totalled €1.6bn. A total of €1.36bn of those funds has been distributed to Ukraine already, and the final €250m is due to be released this spring.
Kiev asked last year for an extra $2bn from the EU but finance ministers were unenthusiastic when they debated the issue in Brussels last month.
On Thursday, speaking after a meeting of the commission in Riga to mark the opening of Latvia’s six-month EU presidency, EU foreign policy chief Federica Mogherini said Brussels would continue to hold Kiev’s feet to the fire over cracking down on corruption and other economic reforms.
“It’s the people [of Ukraine] calling for change,” Ms Mogherini said. “It’s time these changes became real in Ukraine.”
But German chancellor Angela Merkel said Ukraine’s prime minister Arseniy Yatseniuk had presented a convincing case for Kiev’s reform plans, during a visit to Berlin on Thursday. A day earlier, Germany’s government backed €500m in credit guarantees for Ukraine.
Ukrainian bonds rallied, pushing prices up from the record lows reached this week.
Ater Mr Juncker’s proposoal Kiev’s $2.6bn government bond, due in 2017, rose to 66 cents on the dollar, from a low of 58 cents, while a $500m bond due in September increased from 60 cents on the dollar to 74 cents, for a yield of 53 per cent.
Bond prices have plummeted in recent months and the cost of insuring Ukraine’s debt against default has jumped. In late December credit rating agency S&P cut Ukraine’s credit rating to triple C, nine notches below investment grade, and said that without additional aid, default would become inevitable.
