By Ian Talley
WASHINGTON--The International Monetary Fund has urged Ukraine's
fragile government to honor its bailout obligations, a sign the
fund is concerned a breakdown in the country's coalition could
jeopardize its emergency financing package.
Ukraine's ruling coalition broke up on Thursday, with Prime
Minister Arseniy Yansunyuk submitting his resignation, jeopardizing
passage of a supplementary budget that may be needed for the IMF's
executive board to approve the next tranche of financing in late
August.
The fund said IMF Managing Director Christine Lagarde discussed
the implications of the political developments with President Petro
Poroshenko and Mr. Yatsenyuk by telephone on Friday. Ms. Lagarde
"encouraged steady implementation of the authorities' reform
program, including the policy package recently agreed with fund
staff," the IMF said.
After the calls, Mr. Poroshenko said Ukraine is ready to fulfill
all its obligations, despite the country's difficult situation.
The Ukraine president appears to be trying to keep the current
government in place long enough to pass the supplementary budget,
not only to keep the bailout on track, but also to keep the
military funded. Ukraine is combating a violent pro-Russian
secessionist movement in its east.
The IMF approved the $17-billion bailout in late April, part of
a $30 billion international emergency financing agreement to
prevent collapse of the economy after the ouster of the pro-Russian
government in February.
IMF staff gave the initial green light for the release of the
next tranche of bailout cash earlier this month, but warned
fighting in eastern Ukraine risked jeopardizing the emergency
financing program and that additional cash might be required to
keep the economy from collapsing.
The staff-level consent for a $1.4 billion tranche still
requires approval by the IMF's executive board, even though that is
seen as largely a formality, as the bailout helps the U.S. and
Europe keep the new pro-Western government in power.
But if the Kiev fails to meet the basic conditions of the
bailout--a raft of policy changes, budget belt-tightening and other
measures to stabilize the economy--it would be difficult for the
IMF board to justify continued support for the financing. "The
program hinges crucially on the assumption that the conflict will
begin to subside in the coming months," the IMF said earlier this
month.
Write to Ian Talley at ian.talley@wsj.com