IMF approves 15.6b loan package for Ukraine, 5.4b for Argentina
April 1, 2023 01:39 PM
The International Monetary Fund has approved a $15.6 billion support package for Ukraine to assist with the conflict-hit country's economic recovery, the fund said in a statement Friday.
Russia's invasion has devastated Ukraine's economy, causing activity to contract by around 30 percent last year, destroying much of its capital stock and spreading poverty, according to the IMF.
The outbreak of war has rippled through the global economy, fueling global inflation through rising wheat and oil prices.
The invasion has also highlighted Europe's dependence on Russian natural gas for its energy security. Many countries were forced to seek out alternative sources of energy after the war began.
The two-step program will look to stabilize the country's economic situation while the war continues, before turning to "more ambitious structural reforms" after the end of hostilities, IMF deputy managing director Gita Gopinath said in a statement.
The 48-month Extended Fund Facility approved by the fund's board is worth roughly $15.6 billion.
It forms the IMF's portion of a $115 billion overall support package comprised of debt relief, grants and loans by multilateral and bilateral institutions, the IMF's Ukraine mission chief Gavin Gray told reporters on Friday.
"The goal of Ukraine's new IMF-supported program is to provide an anchor for economic policies -- policies that will sustain macro economic financial stability and support economic and economic recovery," he said.
Of the total amount approved by the IMF, $2.7 billion is being made available to Ukraine immediately, with the rest of the funds due to be released over the next four years.
The program also includes additional guarantees from some IMF members in the event that active combat continues beyond its current estimate of mid-2024.
If the conflict were to extend into 2025, it would raise Ukraine's financial needs from $115 billion to around $140 billion, Gray said.
"This program has been designed in such a way that it would work even if economic circumstances are considerably worse than than the current baseline," he said.
$5.4b for cash-strapped Argentina
The International Monetary Fund's executive board on Friday announced a $5.4 billion disbursement to Argentina, part of a $44 billion loan program as the South American nation faces a severe economic panorama.
Argentina is the target of the largest assistance program currently under IMF implementation.
The new disbursement brings to $28.9 billion the total funds already allocated to Argentina since the start of the assistance program in March 2022.
Argentina recorded 5.2 percent economic growth in 2022, a slowdown compared to 2021, but still tallying a second consecutive year of expansion, the first such two-year period of growth since 2010-2011.
Inflation, however, remained high at 94.8 percent, preventing the country from reaping the benefits of this upturn in activity.
The soaring inflation means most goods cost double what they did this time last year, and marks the return of near triple-digit inflation for the first time since the early 1990s.
A week ago Fitch Ratings downgraded Argentina's foreign currency debt to one level above default.
The debt downgrade from CCC- to C suggests that the ratings agency believes a default is "imminent," and comes shortly after a government decree forcing domestic public sector entities to swap their foreign currency-denominated debt for debt denominated in the domestic currency, the peso.
Argentine President Alberto Fernandez held an Oval Office meeting with US President Joe Biden two days ago in which he thanked Biden for US support for loans at multilateral lending agencies like the IMF.
The US is the nation with the greatest voting rights at the IMF.
The agreement signed in March 2021 between the IMF and Argentina, the 13th between the institution and the South American country since 1983, sets benchmarks for the country to deal with chronic inflation.