The International Monetary Fund unveiled two new members of a growing band of countries set to receive its help in the financial crisis yesterday, announcing a $16.5 billion dollar loan for Ukraine and a 'substantial' package for Hungary.
The deals, made public by IMF director Dominique Strauss-Kahn, followed a $2.1 billion loan to Iceland on Friday and came amid appeals for assistance from other countries, including Belarus and Pakistan.
The Washington-based institution, which some analysts had warned risked obsolescence before the financial crisis blew up, has said it can provide up to $200 billion in loans to countries facing financial difficulties.
'The IMF is moving expeditiously to help Ukraine, and this programme is focused on the essential upfront measures needed to maintain confidence and economic and financial stability,' Dominique Strauss-Kahn said.
For Hungary, Strauss-Kahn said a 'substantial financing package' would be announced for the country in the next few days, with contributions from the IMF, European governments and other partners.
The IMF chief said assistance would be provided after 'broad agreement on a set of policies' to be carried out by the Hungarian government, which are expected to include tight limits on government spending.
Both Hungary and Ukraine have been swept up in the financial crisis.
Ukraine stopped early withdrawals from savings accounts this month in a bid to halt a run on banks. The central bank has bailed out several banks and the Ukrainian stock market has lost more than 70% of its value this year.
The vast former Soviet country is getting less money from its main export, steel, because of a slump in global demand, and is using up foreign currency reserves to support its currency, the hryvnia, analysts say.
These factors could lead to problems for the government to pay back some of the foreign loans that have helped boost Ukraine's economy in recent years as well as to make up for budget deficits.
A feud between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko over the president's decision to call fresh elections also risks exacerbating the country's deep economic problems, analysts say.
Ukraine's Finance Minstry welcomed the IMF's support, saying it 'opened a door to Ukraine's speedy cooperation with other international financial organisations" and bolstered private investors' confidence in the country's banking sector.
Hungary's vulnerability is mainly due to a large current account and budget deficit, a partially overvalued currency, a low stock of foreign reserve and a high level of short-term foreign currency debt, analysts say.
Facing a sharp fall in the national currency, the forint, the country's central bank decided last Wednesday to raise its key interest rate by three points to 11.5%.
Officials have vehemently rejected comparisons between Hungary and Iceland, which faced bankruptcy due to the collapse of its supercharged financial sector.
On a busy day for the IMF yesterday, the outcome of an investigation into possible harassment and favouritism by Strauss-Kahn was made public following an affair he had with a former colleague.
The IMF executive board cleared him, saying a probe had 'concluded that there was no harassment, favouritism, or any other abuse of authority by the managing director.
'Nevertheless, the executive board noted that the incident was regrettable and reflected a serious error of judgment,' it said in a statement.
The IMF is one of the cornerstones of the Bretton Woods system that has governed global finance since World War II. It serves as a lender of last resort to cash-strapped countries and monitors capital flows.
