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Ukraine Borrows $2M From Russia

KIEV — Cash-strapped Ukraine borrowed $2 billion from Russia last week to bridge its budget deficit as talks about an IMF loan dragged on, a source in the Ukrainian government said Friday.

"As part of foreign borrowings allowed by the law on state budget, we have borrowed from Russia," said the source who did not provide any other details.

Ukraine's new president Viktor Yanukovych enjoys strong Russian backing and has reversed some of predecessor Viktor Yushchenko's pro-Western policies such as seeking NATO membership.

The government is seeking a $19 billion loan from the International Monetary Fund to assist economic recovery after a 15 percent contraction last year.

But prolonged talks have yet to yield any results as the fund wants Ukraine to commit to more ambitious fiscal and monetary policy targets. An IMF mission will arrive in Ukraine on June 21 to resume negotiations.

Valery Litvitsky, a senior adviser to the central bank chairman, said separately the bank's reserves had grown to $28.5 billion on June 10 from $26.7 billion on May 31.

Ukrainian Deputy Prime Minister Sergei Tigipko said last week that borrowing from Russia was one of the alternatives to IMF financing.

"Ukraine has a huge budget gap to fill, which was supposed to be filled with IMF money, but the government has been disappointed by the slow progress from the IMF so possibly decided to tap other sources," said Elisabeth Gruie, an emerging markets strategist at BNP Paribas in London.

"It's clearly part of the new relations with its Russian neighbors since the election."

The fund last year suspended Ukraine's $16.4 billion rescue program because the former administration of Yushchenko, who was at odds with his government, reneged on promises of financial restraint.

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