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Proceeds from Russian assets could fund bond sales, Ukraine's central bank says

FILE PHOTO: Banknotes dedicated to the first anniversary of Russia's invasion on Ukraine are presented in Kyiv

By Karin Strohecker

WASHINGTON (Reuters) - Ukraine and its international partners have discussed bundling future proceeds from frozen Russian assets to back bond sales by the war-ravaged nation, Ukrainian central bank chief Andriy Pyshnyi said on Friday.

Ukrainian Prime Minister Denys Shmyhal and Finance Minister Serhiy Marchenko met with U.S. Treasury Secretary Janet Yellen, leaders of the International Monetary Fund (IMF) and World Bank, and finance officials from a number of countries on Wednesday on the sidelines of the IMF and World Bank spring meetings in Washington.

The talks focused on a wide range of issues, including how to make use of frozen Russian assets in Western nations - estimated at about $300 billion - to benefit Ukraine, Pyshnyi said in an interview this week.

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One of the possibilities discussed was bundling future interest proceeds from seized Russian assets - estimated to amount to between $3 billion and $5 billion per year - to back bond issuance.

"Various options were discussed, from direct seizure to using assets in bond issuance," Pyshnyi said. "Russia has to pay for all the destruction it has caused and will cause."

European Commission Executive Vice President Valdis Dombrovskis said on Thursday that any solution would likely involve collateralizing Russian assets instead of seizing them outright.

Kyiv has been struggling to shore up financial aid from its partners. The prospect of an additional U.S. aid package has brightened following months of stalemate, with the U.S. Congress set to vote on the weekend to provide billions of dollars in security assistance.

Asked about the outlook for Ukraine's $15.6 billion IMF loan program, Pyshnyi said a mission from the global lender would start working on the fourth review at the end of May after getting a sign-off on the last one in late March.

"There were a lot of discussions around how Ukraine performs on its commitments, and so we hope we will successfully pass the next review," he said.

Ukraine would also take more steps, said Pyshnyi, to unshackle the hryvnia. The currency was pegged to the U.S. dollar right after Russia's February 2022 invasion, which saw the central bank also restrict capital flows.

As part of the currency liberalisation strategy mandated by the IMF programme, Ukraine would allow foreign firms to start repatriating newly paid dividends, Pyshnyi said, with the repatriation of interest payments on "old" debt commitments set to follow in due course.

"We want Ukraine to get new money, new loans, new investments - that is our priority," he said, adding that policymakers were aware they had to tackle legacy liabilities as well.

"It is important that despite the war we gradually return to normality, creating a new normal in the context of war."

(Reporting by Karin Strohecker; Editing by Paul Simao)