IMF 'strongly hopes' Kiev will honour its commitments

International Monetary Fund chief Christine Lagarde said Friday that she "strongly hoped" Ukraine would honour commitments linked to a $17 billion aid package agreed last month but which could be reviewed. The IMF said in a report last week that the rescue programme would have to be "re-designed" if Kiev loses control of the economically important eastern region to pro-Russian separatists, who are preparing a referendum in eastern Ukraine cities on Sunday. "We are following the situation very closely and we strongly hope the Ukrainian authorities will respect the commitments of the programme," Lagarde said, speaking in Morocco. She confirmed Kiev had received the first $3.2 billion tranche of IMF aid, first announced by the Ukraine's central bank on Wednesday. "What it hinges on for us is the determination of the authorities to respect their commitments and implement them," Lagarde said. As well as supporting the Ukrainian economy, the programme "serves as a catalyst for supporting... other financial institutions or partners in a bilateral plan," she added. The rescue package is part of a larger $27 billion deal involving loans from the World Bank and the European Union aimed at strengthening the country under its new pro-Western government. But the fund warned on May 1, shortly after the emergency loan was announced, that there were deep risks to its successful implementation, including the quickly eroding economy, corruption, and the current and future government's ability to implement much-needed reforms. And it made clear that Kiev's failure to maintain control of the pro-Moscow east would threaten the entire loan programme. "Should the central government lose effective control over the east, the programme will need to be re-designed," the Washington-based institution warned. Russia's annexation of Crimea in March -- which is not recognised by the West or other major powers -- represents a loss of around 3.7 percent of Ukraine's GDP, and does not have a significant impact on the government's needs, the fund said. But the potential secession of the highly industrialised eastern region would have serious economic consequences.    The three provinces of Donetsk, Lugansk, and Kharkiv account for about 21.5 percent of GDP and 30 percent of total industrial production. Two days before the planned separatist vote, eastern Ukraine was rocked by more deadly violence, with some 20 rebels and a policeman killed in clashes between Ukrainian troops and pro-Moscow militants in the southeastern port city of Mariupol. Also on Friday, Russian President Vladimir Putin visited Crimea for the first time since its annexation, drawing a sharp rebuke from authorities in Kiev. Putin has warned that if Kiev does not pay the $3.5 billion bill that state-run Russian gas firm Gazprom says it owes, he could turn off the taps, which would also affect several European countries. The IMF has forecast a sharp recession in Ukraine this year -- of five percent negative growth -- with public debt expected to reach 56.5 percent of GDP, compared with 40.9 percent in 2013.