IMF defends huge support for war-torn Ukraine

The International Monetary Fund on Tuesday defended its risky new $17.5 billion loan to Ukraine after eight failed programs with the country, stressing the government was committed to discipline and reform.
IMF first deputy managing director David Lipton said that a real window for progress had opened "for the first time" after decades of government mismanagement and corruption.
As recently as 2013, he said, there was no will among Kiev's leaders to undertake the reforms needed to right its economy, especially to address massive corruption.
"Now, Ukraine has the political will, but it has to contend with full-blown economic and financial crisis," Lipton told the Peterson Institute for International Economics in Washington.
Today, he said, "the country has elected leaders who are approaching economic policy making with purpose and commitment."
Lipton was speaking a week before the IMF's spring meetings, where members are expected to challenge the Fund management over its second Ukraine program in a year as the country remains mired in a conflict with pro-Moscow separatists that has left more than 6,000 dead.
The strain of the war has emptied the government's coffers and run down its foreign reserves to a bare minimum, putting it on track to default on its huge debt load.
In early March the IMF replaced its admittedly inadequate two-year loan program from 2014 with a four-year, $17.5 billion loan that forms the core of a broader $40 billion bailout of the country.
With another key facet of the program still not in place, a debt restructuring that needs to save the government another $15 billion, the IMF admitted that the risks to its program are "exceptionally high".
"We are already hearing from critics who question the wisdom of supposedly putting Fund resources at risk in such an uncertain situation," Lipton said.
"There is only one answer. The Fund's job is to support members in crisis provided they are trying to put themselves right."
"The government has the right plan and the determination to follow through. The program has the backing of the Ukrainian people. So it is only right that we are standing with them."
Lipton said some progress has already been made. The hryvnia currency, which lost some two-thirds of its value since the beginning of last year, has stabilized.
The government has slashed fuel subsidies which were draining public finances, and the outflow from foreign reserves has been halted.
With help from a new $2.4 billion swap arrangement with the People's Bank of China, Kiev's foreign reserves will rise from import cover of just one month to three months' worth by June.
Swap arrangements with two or three other central banks are under discussion that should further shore up reserves, Lipton said.
Although such arrangements are short term, "it does provide a measure of safety and protection given the uncertainties that Ukraine faces," he said.
Even so, Lipton acknowledged the challenges ahead, including deeply ingrained graft, which drained billions of dollars from the country while it was receiving support from the IMF and other lenders in previous years.  
"Nothing is more important than a commitment to tackle corruption," he said.
In addition, he said, the February ceasefire negotiated with rebels needs to hold.
"If the conflict in the east of the country intensifies -- and we all certainly hope it won't -- then one has to be concerned about the sustainability of the expected recovery," Lipton said.
"So we can only urge Ukraine and Russia to work with all parties to continue the peace process."