Ukraine faces mammoth task to stave off financial ruin

Ukraine faces a monumental task to stave off possible economic collapse but the IMF and EU are likely to demand painful reforms in return for an emergency bailout, officials and analysts say. Ukraine's new leaders say the country needs a whopping $35 billion in emergency aid to keep functioning, amid fears that Russia could abandon a $15 billion loan offer. But Western leaders have warned that the situation in the former Soviet nation remains highly volatile after a weekend that saw the ousting of pro-Moscow president Viktor Yanukovych. The International Monetary Fund is "best placed" to provide urgent support, but this would be conditional on political and economic reforms, British Foreign Secretary William Hague said as he headed off Monday for talks in Washington with US Secretary of State John Kerry and the IMF. His visit is likely to focus on how to stitch together a bailout without tearing apart the new political landscape in Ukraine. Ukraine's interim leaders are now looking towards the European Union and over their shoulder at the role to be played by Russia, a major trading partner of Ukraine that has threatened to hike import duties if Kiev signs a partnership agreement with the EU. Ukraine's interim finance minister Yuri Kolobov said this week his country needs $35 billion (25 billion euros) by the end of next year to meet debt payments and keep functioning and is calling for an urgent conference of international donor countries. The Institute of International Finance, which represents about 450 financial institutions around the world, says Ukraine needs help immediately to avoid collapse and to avert the risk of panic in its banking sector. - 'Very painful reforms' needed - Its chief economist for emerging countries in Europe, Lubomir Mitov, described Ukraine's problems as "gigantic", saying foreign reserves had slumped from $16 billion at the end of January to $12 billion now, while $25 billion of debt would fall due this year. Ukraine has no choice but to accept "very painful reforms", including a doubling of the price of gas, in return for help from the IMF and EU, he said. IMF chief Christine Lagarde said on Sunday that "we stand ready" to help Ukraine, a line echoed by the United States as well as its European allies. "We are talking with all the parties concerned," IMF spokesman Gerry Rice told AFP. The German official responsible for relations with eastern Europe, Gernot Erler, pinpointed three key players -- the EU, the IMF and Russia --  but said that so far the main problem had been that there was no new government in Ukraine with which to negotiate rescue conditions. The European Commission says its top officials have already had talks with the IMF, the European Bank for Reconstruction and Development, and the European Investment Bank. But some governments in the 28-member EU could encounter reticence among their voters towards help for Ukraine at a time of rising resentment towards immigration from eastern Europe, and continued austerity in the wake of the eurozone debt crisis. Ukraine itself, with rich "black earth" agricultural land, but unreformed heavy industry in the east originating from the days of Soviet domination, has become dependent on trade relations with Russia, from where it receives most of its energy supplies. Russian-speaking eastern Ukraine is the country's economic engine, home to most of its industry and host to a major Russian military base. Gripped by deep recession in 2009, Ukraine signed an agreement for Russia to maintain a naval base in Crimea on the Black Sea until 2042 in exchange for a big discount on the price of the Russian gas on which it is dependent. Thomas Gomart, the head of strategic developmlent at the French institute for international relations (IFRI), said Yanukovych had done nothing to develop the economy beyond this agreement. - IMF, EU rescue 'rather unlikely' - When Yanukovych abandoned an EU pact in November, Russia promised a $15 billion bailout along with a 30-percent cut in the price of gas. The EU by contrast had clung to the outline of a draft association agreement, conditional on reforms backed by help of only 610 million euros. Any IMF-based rescue would be conditional on "extremely deep reforms with an extremely high social cost," Gomart said, adding that many of the new figures on the political scene came from parliament, "the symbol of corruption in Ukraine". Gomart said a rescue package by the IMF and EU "is rather unlikely in reality". "There is likely to be very quick disillusion and the situation in Ukraine remains highly inflammable," he added. Greek Foreign Minister Evangelos Venizelos, whose country currently holds the EU rotating presidency, said on Tuesday: "We must avoid a civil war. "We must avoid the financial and economic collapse of the country, there must be an international conference to avoid the bankruptcy of Ukraine."