Lagarde Warns Ukraine On Cash For Reform Deal

Ukraine has been warned it could lose its financial support from the International Monetary Fund because it has failed to implement reforms demanded in exchange for the aid.

Christine Lagarde, the organisation's managing director, issued the ultimatum as Kiev continues to sweat on a payment that had been due in October last year but was held back because of budget disputes.

Ukraine has relied on the support of the world's lender of last resort and others as its finances remain mired in difficulties.

They are a product of corruption since its independence from the old Soviet Union in the 1990s and a legacy of that breakaway as its conflict with Russia resulted in the annexation of Crimea and continuing tensions.

The IMF had agreed a $18bn (£10.8bn) aid package with Ukraine in 2014 to help it avoid the prospect of defaulting on its debts.

In return for the money, it demanded an end to massive energy subsidies and other major tax reforms and spending controls but political squabbling has delayed their implementation.

Only last week, Ukrainian economy minister Aivaras Abromavicius resigned, saying his reform efforts had been blocked by government colleagues.

He accused allies of President Petro Poroshenko and the prime minister of involvement.

It was the fourth such resignation since Ukraine's political revolution that saw ex-president Viktor Yanukovych flee the country and Ukraine align itself with Europe.

Ms Lagarde's statement reflected the frustration at the political turmoil.

She (Munich: SOQ.MU - news) said: "It is hard to see how the IMF-supported programme can continue and be successful.

"I am concerned about Ukraine's slow progress in improving governance and fighting corruption, and reducing the influence of vested interests in policymaking.

"Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history", adding: "It is vital that Ukraine's leadership acts now to put the country back on a promising path of reform."

Ukraine has been lobbying for greater international support but that would now appear to be tough to achieve given the IMF's stance.

The World Bank, which has been among the organisations providing financial aid, forecast in October that Ukraine's economy could emerge from three years of recession this year.