UPDATE 1-EBRD offers Ukraine 5 bln euro package, sticks with Russia

Wed Mar 5, 2014 11:28am EST

By Marc Jones

LONDON, March 5 (Reuters) - The European Bank for Reconstruction and Development promised Ukraine a 5 billion euros, six-year aid package on Wednesday on the condition it enters into an IMF programme and makes greater efforts to stamp out corruption.

The bank also doused speculation that it could be used by Western backers to punish Moscow for its recent actions in Ukraine, saying it was continuing to invest in Russia.

It said the package for Ukraine, which will run until 2020 as part of a bigger 11 billion euro European Union deal, was aimed at supporting the country, "as part of a coordinated international financial assistance programme in support of credible structural and macroeconomic reforms."

The 5 billion euros earmarked could be exceeded if economic circumstances permitted. It added it was "essential for investor confidence" that Ukraine agreed a macro-economic stabilisation programme with the International Monetary Fund.

Ukraine has been thrown into chaos in recent weeks as the ousting of its pro-Moscow president Viktor Yanukovich has been followed by Moscow effectively taking control of Ukraine's largely Russian-speaking Crimea peninsula.

Ukraine is on the verge of bankruptcy because of economic mismanagement, high energy costs and currency turmoil amplified by its conflict with Russia. Kiev's new rulers have said they need $35 billion over the next two years.

Jonathan Charles, the EBRD's head of communications, said that part of the deal would see the bank investing with the Ukraine government again.

Though it had continued with private sector projects, it had used worries about corruption to stop its direct dealings with Kiev last month as European pressure rose on Yanukovich.

"With the new government we will be looking at all possibilities again," Charles said. "There is now a Ukraine taskforce working in the bank to assess what Ukraine's needs are and what we can do to meet them."

Although he was careful not to pre-empt any decisions ahead of Thursday's summit of European leaders, Charles also played down speculation that the EBRD could reduce its lending in Russia as part of any potential sanctions imposed over Ukraine.

Russia is where the EBRD spends the biggest proportion of its money. Of the 8.5 billion euros it invested last year, 1.8 billion went to Russian projects, bringing the overall amount it has at stake in the country to 23.7 billion euros.

According to its latest figures, 783 projects are up and running. Industry, commerce and agri-business schemes make up just under half the total, energy and infrastructure share about 30 percent and financial sector loans make up the rest.

"We are continuing to invest in Russia," Charles said.

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