UPDATE 3-IMF wraps up talks on aid for Ukraine -source

Wed Mar 26, 2014 5:55pm EDT

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(Updates with confirmation from press conference in paragraph 2)

By Natalia Zinets

KIEV, March 26 (Reuters) - The International Monetary Fund concluded talks with Ukrainian officials on Wednesday, and was likely to announce an aid deal on Thursday for Kiev to help plug the government's budget gap and put its economy on a growth track.

"The talks have ended," a source close to the negotiations said. The central bank late on Wednesday announced a press conference with the IMF's mission chief for Thursday at 9:30 a.m. (1130 GMT)

A bailout from the IMF would help prop up Ukraine's economy and clear the way for several billion dollars in aid from the United States, European Union, Japan and other nations. Ukraine has been in turmoil after months of anti-government protests and Russia's annexation of its Crimea region.

In another sign officials were putting the finishing touches on a deal, Ukraine's new leaders announced a radical 50 percent increase in the price of domestic gas from May 1, meeting an unpopular condition for IMF aid that Russian-backed President Viktor Yanukovich had refused before he was ousted last month.

The IMF had long urged Kiev to cut energy subsidies, saying they ate up 7.5 percent of Ukraine's GDP in 2012. The Fund has also been pushing Ukraine to float its currency.

Ukraine's new leaders, who took power when Yanukovich was ousted after months of street protests, have pledged to meet all requirements set by the IMF.

Kiev has said it desperately needs cash to cover expenses and avert a possible debt default. The country's finance minister has predicted the economy would contract 3 percent this year, weakened by years of mismanagement and the recent political turmoil.

Citing officials involved in the talks, the Financial Times reported that the IMF was expected to announce a bailout package of about $15 billion as early as Thursday. After that report, Ukraine bond prices ticked higher and the cost to insure its debt fell to the lowest level in a month.

The IMF had considered a quick infusion of $1 billion. However, the paper said the Fund now hopes to agree to a larger and more lasting package.

On Tuesday, Ukrainian Finance Minister Olexander Shlapak said Kiev was negotiating for a deal of between $15 billion and $20 billion.

Once IMF staff reaches agreement on parameters of an aid package, its board must still sign off on the program. Ukraine's leaders have said they hope to receive the first tranche of IMF aid in April.

After the FT report, Ukraine's five-year credit default swaps fell further below the 1,000 level that indicates distressed debt.

Meanwhile, yields on several Ukraine bond issues dipped as their prices, which move in the opposite direction, rose slightly. (Reporting by Natalia Zinets in Kiev; Additional reporting by Anna Yukhananov in Washington, Dan Burns in New York and Carolyn Cohn in London; Editing by Paul Simao, James Dalgleish and David Gregorio)

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