WASHINGTON Russia's further incursions into eastern Ukraine would have serious macroeconomic consequences, destabilizing banks and crimping Ukraine's national output, the central bank governor said on Sunday.
Many of Ukraine's biggest factories and some of its agricultural production lie in the east, where pro-Russian separatists have taken up arms and occupied government buildings.
"The main risk (to the economy) has a political-occupational character," National Bank of Ukraine Governor Stepan Kubiv said in an interview on the sidelines of the IMF-World Bank meetings in Washington.
"Because if after Crimea, it will be Lugansk, Slaviansk, Donetsk, Kharkhiv, and other small towns, then we immediately talk about a considerable amount of liquidity," he said, listing other towns in Ukraine.
Kubiv also said Ukraine was prepared to pay Russia about $386 per 1,000 cubic meters of gas, below the amount Moscow had demanded. But he emphasized that Ukraine will pay all its bills.
"Ukraine has always paid to creditors on time, based on market and contractual prices," Kubiv said. "All the debts we owe, we will pay, and there is no other option."
Moscow, which alienated Western powers by annexing Ukraine's Crimean peninsula, this month raised the price it charges Kiev for gas by 80 percent and said it awaits $2.2 billion in unpaid bills.
Ukraine is set to receive a two-year, $14 billion to $18 billion IMF loan package by early May in exchange for implementing tough economic reforms such as raising energy prices and floating its currency. Other donors such as the World Bank, United States, European Union and Japan have also promised support.
"Economic reforms and investment activity, plus the IMF's two-year program (and other bilateral contributions)… means we will have enough resources to complete market reforms," Kubiv said, adding that afterwards Ukraine plans to return to finance itself in market.
"We will be OK."
(Reporting by Anna Yukhananov and Lidia Kelly; Editing by Eric Walsh)