Business in Ukraine

Ukraine’s parliament on Wednesday gave initial approval to legislation crucial for receiving an emergency loan from the International Monetary Fund, as forecasts of the country’s financial crisis grew gloomier.

The government hopes the $16.5 billion loan will help avoid a meltdown as it struggles to defend the fallen national currency and a shaken banking sector.

Lawmakers in the 450-member Verkhovna Rada, which has been paralyzed for nearly two weeks due to a political standoff, voted 248-2 to pass the bill in the first of two required readings. Other lawmakers didn’t vote.

Central bank chairman Volodymyr Stelmakh warned Wednesday that the aid, which still needs to be approved by the IMF board, is vital to help avert a default on foreign lending by the nation’s banks and large corporations.

Volodymyr Stelmakh warned that the failure to secure the IMF loan will lead to “a moral discrediting, understand it, and the announcement of default.”

“It will concern every Ukrainian,” Stelmakh said at a news conference.

Experts hailed the parliament vote. “This is very good,” said Olena Bilan, a macroeconomics analyst with Dragon Capital Investment bank. “This will give a positive sign to foreign investors.”

IMF mission head Ceyla Pazarbasioglu told reporters Wednesday that to get the loan Ukraine must maintain a prudent fiscal policy and launch structural reforms.

“They understand the challenges and the need to act,” Pazarbasioglu said after meeting with lawmakers and government representatives.

Pazarbasioglu said the IMF board has not set a deadline for a board meeting to give final approval for the loan and will give Ukraine time to pass the bills.

Ukraine is struggling to defend the national currency, the hryvna, which has fallen over 20 percent, and a banking sector hit hard by a crisis confidence and the global credit crunch.

Ukraine’s severe financial crisis has been further complicated by a fierce standoff between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko which has left the parliament in a deadlock. Tymoshenko is fighting Yushchenko’s order to hold early parliamentary elections in December, in which she risks losing her job and her faction has paralyzed parliament’s work for nearly two weeks.

Yushchenko’s top aide Oleksandr Shlapak said Wednesday that Ukraine would plunge into a recession next year with economy contracting by 2 percent. Ukraine’s economy has been growing at an average 7.4 percent over the past few years.

In the absence of foreign currency flowing into the country, the hryvna plunged to a new low Tuesday trading at 6.35 on the foreign currency exchange Tuesday. The currency stood at 6.3-6.4 to the dollar in morning trading at the exchange Wednesday.

Ukraine is one of hardest-hit by the financial crisis among emerging markets. Output in the steel industry, which accounts for 6 percent of gross domestic product and 40 percent of the country’s exports, is down by 30 percent because of falling global demand.

That has widened the trade deficit to $12.5 billion so far this year. A run on banks has stripped the banking sector of $3.4 billion this month.

The country’s stock market lost more than 75 percent this year. The main stock exchange saw moderate losses Wednesday, after recovering 2.73 percent Tuesday.

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