EBRD to Help Ukraine Banks

12:34, 12 March 2009
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After IMF Accord Reached

 European Bank for Reconstruction and Development President Thomas Mirow said the bank will offer support to Ukraine’s banks only after the country resumes cooperation with the International Monetary Fund, according to Bloomberg.

“It depends on whether there is an agreement” between Ukraine and the IMF, Mirow said in an interview in London late yesterday. “We are ready to invest more than 1 billion euros ($1.27 billion) in Ukraine’s financial system and real economy if there is an agreement with the IMF.”

The London-based lender said on Feb. 18 it is ready to invest 500 million euros into as many as 20 Ukrainian banks.

Ukraine, with Romania, Hungary and Latvia, was forced to seek a bailout after the global financial crisis stifled investment, shook the banking system and sent the currency into a tailspin. The second installment of Ukraine’s $16.4 billion IMF loan, expected last month, was delayed indefinitely after the government said it’s targeting a budget deficit of 5 percent of gross domestic product, in breach of IMF conditions.

The two sides reached an “understanding” on keeping down the budget gap and are trying to “identify adjustments” that would be “the least painful for the population,” IMF representative Max Alier told reporters in Kiev today after attending a government meeting. He declined to comment on when funds from the loan may start flowing again.

Contentious Articles

Ukraine’s Deputy Premier Hryhoriy Nemyrya said the government had agreed at the meeting to cancel two contentious points in the 2009 state budget.

The cost to protect against defaults by Ukraine and Latvia rose to record highs today as the government looked to renegotiate terms of the IMF bailout.

Credit-default swaps linked to Ukraine jumped to 65 percent upfront and 5 percent a year, from 63.7 percent, a rise equivalent to more than 500 basis points, according to CMA DataVision in London. That means it costs $6.5 million in advance and $500,000 a year to protect $10 million of bonds for five years.

Ukraine’s economic contraction this year will bring to an end nine years of growth and is exacerbated by a power struggle between Prime Minister Yulia Timoshenko and President Viktor Yushchenko. The economy may shrink 12 percent this year, Standard & Poor’s credit analyst Frank Gill said on March 6.

Coping With Crisis

The World Bank, the EBRD and the European Investment Bank said on Feb. 27 they will provide as much as 24.5 billion euros to help central and eastern European banks and businesses cope with the crisis. The EBRD will provide about 6 billion euros, the EIB about 11 billion euros and the World Bank about 7.5 billion euros.

Hungarian Prime Minister Ferenc Gyurcsany said on March 3 he wants the EBRD to change its charter, enabling it to lend and invest as much as three times its 20 billion euros of share capital.

“That would not be our proposal for shareholders for the time being,” said Mirow, adding that they “are able to cope with the duties with the capital” they have. “Currently, we’re discussing with our board how to make more efficient use of the capital we have. But if shareholders think we should do much more in the east than we are doing now, then the question might be raised,” he said.

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