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Ukraine Seeks Better Terms for IMF Financing, Minister Says

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March 4 (Bloomberg) -- Ukraine will seek better terms from the International Monetary Fund for a $15 billion bailout loan amid tensions with Russia in the Crimean peninsula, Economy Minister Pavlo Sheremeta said.

The Washington-based lender has said since 2010 that Ukraine must raise natural gas tariffs for households by 30 percent as a first step to reducing state subsidies and cutting the budget deficit. The government plans to narrow the shortfall to 2.5 percent of gross domestic product this year, Sheremeta said. The previous cabinet’s target was 4.3 percent.

“I think the IMF’s conditions will be the same but the criteria will be milder,” Sheremeta said in a Bloomberg Television interview yesterday. The government wants to discuss raising tariffs by a smaller percentage and setting a timeframe for cutting spending, he said.

The eastern European nation seeks IMF financing as foreign-currency reserves slid to their lowest since 2005 and Prime Minister Arseniy Yatsenyuk warned a default is looming. Ukraine is mired in the worst standoff between the West and Russia since the end of the Cold War after Kremlin-backed Viktor Yanukovych was ousted as president and a pro-European government took office Feb. 27.

Hryvnia Gains

The hryvnia strengthened 6.7 percent to 9.1 per dollar as of 8:05 p.m. in Kiev. It has lost 9.5 percent against the dollar since the beginning of the year, more than any currency except the Argentine peso and the Kazakh tenge, according to data compiled by Bloomberg. The yield on the Ukrainian government’s dollar bonds due in 2023 slid to 9.6 percent from 10.55 percent yesterday.

Russia halted a $15 billion bailout for Ukraine after Yanukovych was ousted and said today that a gas-price cut agreed to in December has been taken off the table. Russia may lend $2 billion to $3 billion to Ukraine to help repay debts to Gazprom, Premier Dmitry Medvedev said today.

The U.S. and European Union have pledged financial support. The U.S. Treasury Department said it’s planning an economic assistance package for Ukraine that includes a $1 billion loan guarantee.

A 30 percent increase in the price of natural gas for private consumers and utility companies would save the government about $700 million a year, or approximately 0.5 percent of GDP, according to Olena Bilan, chief economist at Dragon Capital in Kiev.

Sheremeta’s plan to seek less onerous terms for the loan follows a pledge yesterday by the prime minister to meet all the IMF’s requirements for the funds in an effort to restore reserves and calm currency markets.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Ryan Chilcote in Kiev at rchilcote@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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