By JUERGEN BAETZ
2014-03-06 03:01 AM
BRUSSELS (AP) -- The United States and the European Union have offered financial aid to Ukraine and Russia has halted its rescue program for the country. The moves are part of the international tussle over Ukraine's political and economic future, pitting Moscow against western capitals.
Ukraine is running out of cash and needs a bailout. Its currency is tumbling, unpaid gas bills are piling up and the political instability caused by Russia's intervention on its Crimean Peninsula further weighs on its already dim growth prospects. Ukraine estimates it needs $35 billion rescue loans over the next two years.
Here's a look at what the various offers consist of and how they compare:
The 28-nation EU -- which includes four countries bordering Ukraine -- said Wednesday it is ready to give Ukraine 11 billion euros ($15 billion) in loans and grants over the coming years.
The aid will include 1.6 billion euros in loans and 1.4 billion euros in grants from the EU budget and at least 8 billion euros in fresh credit from financial institutions including the European Investment Bank and the European Bank for Reconstruction and Development.
The EU is also offering to fast-track Ukraine to a free trade and economic agreement. The deal would boost Ukraine's economic output and its industrial and agricultural exporters could save some 900 million euros annually through reduced tariffs, according to the EU Commission figures.
The EU plan also foresees technical assistance on issues like modernizing its energy industry, and aims to allow visa-free travel for Ukrainians.
Most of the financial aid will hinge on a new Ukrainian government committing to implementing tough economic reforms as part of a deal with the International Monetary Fund.
Russia offered Ukraine $15 billion in bailout loans in December, officially without strings attached. Russia also offered a substantial discount on natural gas supplies, which was a relief to Ukraine's state coffers since it spends billions to subsidize gas prices.
Analysts say Moscow's emergency loans came with the unstated condition that Ukraine cease pursuing closer ties with the EU like the free trade agreement and join a customs union of post-Soviet nations that Russian President Valdimir Putin seeks to promote.
Ukraine's then-President Viktor Yanukovich duly ditched the EU agreement and sided with Moscow, but Russia only disbursed the first $3 billion of the emergency loans before his government collapsed amid popular protests last month.
Russian state gas company Gazprom said this week it would cancel the discount on natural gas granted, and Putin noted Ukraine's state gas company Naftogaz will owe $2 billion for gas, including February's bill.
Washington has pledged a $1 billion in loan guarantees for energy subsidies.
Secretary of State John Kerry said this week during a visit to Kiev that the $1 billion was only the beginning to make funds available quickly. He noted the U.S. is working with the IMF and other international partners on developing "an assistance package to help Ukraine restore financial stability in the short run and to be able to grow its economy in the long run."
INTERNATIONAL MONETARY FUND
The IMF is expected to be the main rescue lender for Ukraine, and has deep pockets for multibillion dollar bailout programs. The downside is it only grants assistance with tough conditions attached.
The IMF's logic is that it is pointless to dole out billions in loans to keep a country afloat if the economy is not reformed to fix the underlying problems.
The IMF already granted Ukraine financial assistance in 2008 and 2010 but pulled out when the government failed to respect the bailout terms.
The fund has so far declined to provide estimates of how big a new package for Ukraine would be. Its experts are currently assessing the situation in Ukraine, and negotiations could drag on for months.
The IMF will likely insist, among other things, on spending cuts, a currency devaluation and a sharp hike to natural gas prices which would hurt ordinary Ukrainians and could quickly douse any euphoria over the country's political changes. The EU and U.S. are therefore expected to grant the country more economic assistance to sooth the pain and foster growth.
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