EU examining immediate and long-term aid for Ukraine

Mon Feb 24, 2014 8:11am EST

* EU speaking to China, U.S., Japan, Turkey on Ukraine aid

* Officials say "desirable" that Russia be involved too

* Ukraine says it needs $35 billion for 2014-15

* EU, U.S. officials emphasize need to work with IMF

By Luke Baker and Justyna Pawlak

BRUSSELS, Feb 24 (Reuters) - Europe is discussing a range of options for short- and longer-term financial assistance to Ukraine, but any comprehensive package is only likely to take shape after elections in May and in coordination with the International Monetary Fund.

Ukraine's finance ministry said on Monday it needed $35 billion to survive 2014 and 2015 and asked for the first payments to be made in the next one to two weeks, possibly alongside a donors' conference.

It is highly unlikely Europe, the United States or anyone else would put that much money on the table right away. But smaller bilateral loans, possibly coordinated via the EU, could be used to provide short-term assistance, officials said.

Discussions have already taken place with Japan, China, Canada, Turkey and the United States on potential donations, a senior European Commission official said, and efforts are being made to keep Russia engaged in the process as well.

"Nothing can be ruled out," said a separate official involved in efforts to help Ukraine.

"Many of the proposals we're working on require an IMF deal to be in place, which means an operational government in Ukraine, so it can't happen until after the elections.

"But the EU is in a good position to coordinate action if member states want to provide money. They have the resources and there is a willingness to help."

The European Commission confirmed a variety of options for financial assistance were being discussed.

"The EU has been working on an international economic support package for Ukraine - short, medium and long-term support to address the challenges of the Ukrainian economy," said Commission spokesman Olivier Bailly.

"It's too early for us to point out one option or set of options, but we are here to help provided there is economic reform in Ukraine. We don't exclude any of the options necessary to bring economic support to Ukraine."

He played down the possibility of a donors' conference but indicated that Catherine Ashton, the EU's foreign affairs chief, who is visiting Kiev, may announce something later.

"I'm not personally aware about any decision taken for such a conference, but as high representative Catherine Ashton is actually in Kiev, I'm sure she will be the first one to comment if such an announcement is confirmed," he said.

DELICATE BALANCE

Three months ago, the EU was hoping to sign Ukraine up to a far-reaching free trade and association agreement that would have brought the country of 46 million more closely into the EU's political and economic sphere of influence.

Ukraine's now-deposed president, Viktor Yanukovich, rejected that deal at the last minute, deciding instead to accept $15 billion in aid and cheaper gas from Russia. That led to weeks of popular protests in Kiev and other cities, culminating in Yanukovich's tumultuous removal from office at the weekend.

The EU now finds itself in a delicate balancing act. It had thought that it had lost Ukraine to Russia and was beginning to consider its longer-term options for engaging with the country, which borders four EU member states.

Now history has speeded up and the EU finds itself trying to come up with immediate solutions to handle the economic turmoil and the fallout from the collapse of the government, while doing everything it can to keep Russia constructively engaged.

While it is clear that Ukraine needs rapid financial assistance, it is also true that it does not face any substantial financing problems until late May, when it also plans to hold elections for a new government.

IMF THE KEY

EU and U.S. officials have said they intend to coordinate any long-term aid for Ukraine via the IMF, which has been in discussion with Kiev on assistance for years. It agreed a $15.5 billion loan in 2010, but suspended the deal last year after Ukraine failed to implement the required reforms.

After elections have been held, EU officials hope Ukraine will be able to resume formal talks with the IMF and commit itself to reforms, which include removing subsidies from gas and freely floating the currency.

If Ukraine can strike a new agreement with the IMF, that would allow the EU to disburse around 2-3 billion euros of extra assistance, officials say, and could unlock further help from the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank.

But everything first hinges on the IMF.

"The IMF would be precisely the right partner," said Steffen Seibert, spokesman for German Chancellor Angela Merkel.

"The main elements of what a possible aid package could look like are known. There can be help from the IMF in supporting economic reforms. Under the same conditions, namely the readiness to undertake reforms, the EU is ready to support the country, to offer macro-financial help."

At the same time, the EU needs to keep Russia on side. Moscow has suspended any further payments from the $15 billion it offered Ukraine in December and could also decide to raise the price of gas it supplies.

In that regard, Russia still holds a tight grip on Ukraine, despite the wholesale change in the government. Russian Prime Minister Dmitry Medvedev questioned the legitimacy of the new authorities in Kiev on Monday and said any extension of gas contracts would need to be negotiated.

In a reflection of the difficult balance the EU finds itself trying to make, French Foreign Minister Laurent Fabius, speaking during a visit to Beijing, said it would be "desirable" for Russia to offer support for Ukraine.

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Comments (1)
Poor Ukraine does not know what that means. It will find itself between a rock and a hard place very soon. THe IMF is known for demanding vicious reforms before they give money and they are quck to stop money from flowing if the reform demands are not met. They actually MAKE countries poor!

The EU is at its financial breaking point too. They cut, cut, cut spending everywhere and where should the money for Ukraine come from with all those Maastricht Criteria?! they barely saved the greeks, or should i say, the german and english and french banks that made business in greece?!

Ukraine will get nothing. They will find out soon enough.

Feb 25, 2014 5:04am EST  --  Report as abuse
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