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Ukraine adopts austerity budget backed by IMF; 17 bn loan approved

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Kiev (Dec. 29, 2014): Ukraine's parliament on Monday adopted an austerity budget that hikes import prices and shrinks social spending in order to balance the books under a plan backed by the International Monetary Fund.

The highly-disputed 2015 plan was pushed through by the government-led coalition after a long debate that ended after 4:00 am.

Ukrainian President Petro Poroshenko paid an unannounced visit to parliament on Sunday evening in order to convince his own disgruntled faction members to support the bill in the face of public discontent.

About 1,000 people lit flares and held up angry signs outside the parliament building in protest at the additional pain the measures will mete out on the war-scarred nation in the year ahead.

The financial blueprint was passed only after Prime Minister Arseniy Yatsenyuk promised deputies a chance on February 15 to soften some of its more unpopular points should these revisions backed by a visiting IMF team.

But many lawmakers harshly criticised the government for failing to provide them with all the details of the budget before the vote.

Poroshenko's advisers hailed the plan as a long-overdue measure that will cause short-term pain in order to help Ukraine funnel resources better into lagging economic sectors and the army.

"Two pieces of news. One good and one bad," presidential administration member Valeriy Chaly wrote in a Facebook post.

"The first is that my salary -- along with that of all the other leaders -- has been rather seriously cut," Chaly wrote.

"And the second: the budget was adopted, and this means 90 billion hryvnias ($5.7 billion, 4.7 billion euros) for defence."

Poroshenko has vowed to boost spending on the army; its poor morale and outdated equipment exposed by the eight-month campaign against pro-Russian insurgents in Ukraine's industrial east to five percent of gross domestic product from less than two percent today.

The most unpopular changes include a 10 percentage point hike in the customs duty imposed on alcohol and tobacco; as well as most food.

A five percentage point rise will apply to almost all other items except for energy and a few other exceptions.

This year's 20 percent slowdown in production has forced Ukraine's to rely on imports to an even greater extent than in years past.

The new budget also allows the state to raise money by opening up cassinos and allowing online gambling.

But social benefit payments to the poor and elderly will only be raised in line with inflation -- projected to jump by 13 percent in 2015 -- while help with utility and other bills will be cut for all.

The cumulative effect is designed deflate Ukraine's budget deficit to 3.7 percent and kickstart growth in 2016.

Finance Minister Natalie Jaresko -- a US citizen who was plucked from her Kiev-based investment house this month to help streamline Ukraine's relations with global lenders -- said all the measures had been agreed with the IMF and that most would be repealed in 2016.

The IMF approved a $17.1 billion two-year loan to the bankruptcy-threatened former Soviet republic in the wake of the February ouster of a Moscow-backed leader and Kiev's decision to expand its ties with the European Union.

But the Fund has delayed the past two payments due to Poroshenko's inability to come up with a clear restructuring plan that could stem an economic implosion projected to reach up to eight percent this year.

The Standard and Poor's ratings agency warned that "the government might not be able to meet its obligations" without a further $15 billion from world lenders next year.