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Ukraine risks losing IMF cash over stalled reforms -Lagarde

Published: 14:49 EST, 10 February 2016 | Updated: 14:49 EST, 10 February 2016

By Alessandra Prentice

KIEV, Feb 10 (Reuters) - Ukraine could lose a $17.5 billion bailout from the International Monetary Fund unless it speeds up political reforms and curbs corruption, the head of the IMF said on Wednesday.

Christine Lagarde's warning followed the shock resignation last week of the economy minister, Aivaras Abromavicius, which highlighted divisions inside the ruling coalition and its patchy performance on reforms promised under the IMF programme.

"Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported programme can continue and be successful," Lagarde said in an online statement.

In an apparent reference to Abromavicius's complaint that vested interests still dominated Ukrainian policymaking, Lagarde said she was concerned about slow progress on corruption.

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

Ukraine's President Petro Poroshenko later said he had spoken with Lagarde by telephone and that they had agreed to draw up a roadmap to deal with the most critical reforms.

"The president noted the necessity of rebooting the government without snap elections, which would only deepen the political crisis and worsen conditions for carrying out reform," a statement on his official website said.

POLITICAL GAMES

Ukraine's Western backers have warned it not to repeat the mistakes of the past when the euphoria of 2004's pro-European "Orange Revolution" eroded amid government infighting and a failure to stamp out graft.

Commenting on Lagarde's statement, the central bank said it was vital that Ukraine continued to work with the Fund and other foreign donors.

"Further delay in resuming cooperation with the IMF could have negative consequences as much for the financial stability of our country as for the welfare of citizens," it said.

Ukraine has been waiting since October for a third tranche of IMF loans, worth $1.7 billion, but slow reforms and political squabbles have delayed its disbursement.

The government's approval ratings have tumbled over concerns about the pace of change, two years after street protests over corruption toppled a pro-Russian leadership. It could face a no-confidence motion in parliament in mid-February.

Prime Minister Arseny Yatseniuk said political infighting was endangering Ukraine's future.

"They (Western backers) will only help us when the whole world sees that we are helping ourselves and pushing the country forwards," he told a ministerial meeting.

The political crisis has weighed heavily on the Ukrainian bond market and helped push the hryvnia currency close to 11-month lows.

Even before Lagarde's statement, Ukraine's dollar bond spreads had risen above 1,000 basis points, levels seen as denoting distress, for the first time since November, when debt was issued to creditors after a restructuring.

The IMF programme is part of a $40 billion international bailout from donors including the United States and the European Union. (Additional reporting by Pavel Polityuk and Natalia Zinets; Editing by Gareth Jones)