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IMF's Lagarde says no need to panic on Ukraine aid request

By Anna Yukhananov

WASHINGTON (Reuters) - The head of the International Monetary Fund said on Friday that there was no need to "panic" in terms of delivering economic aid to Ukraine, as she cast doubt the nation would need as much immediate help as its new leaders claim.

"We do not see anything that is critical, that is worthy of panic at the moment," IMF Managing Director Christine Lagarde told reporters. "We would certainly hope that the (Ukrainian) authorities refrain from throwing lots of numbers which are really meaningless until they've been assessed properly."

Ukraine's government coffers have been depleted by huge debt repayments, efforts to protect its currency and high energy costs. The country's new leaders, appointed after President Viktor Yanukovich was ousted last weekend, say they need $35 billion over two years to avoid default, and may need $4 billion immediately.

Yanukovich, fearing a political backlash, avoided unpopular economic policies recommended by the IMF, such as letting the hryvnia currency float and phasing out costly energy subsidies.

He managed to secure a $15 billion aid package from Ukraine's former Soviet master Russia last year, but only $3 billion has been disbursed and the rest is in doubt. Yanukovich's government fell after weeks of street protests against his government and closer ties with Russia.

Now, support from the Washington-based IMF is seen as critical to shore up Ukraine's collapsing finances and get its economy on the right track. The United States and European Union say they are willing to provide funds alongside an IMF program. Russia also supports the Fund's involvement.

An IMF team is set to arrive in Kiev early next week to collect information and start working on a loan program.

"I think it's highly premature to assess financial needs, numbers here, numbers there," Lagarde said after meeting with German Foreign Minister Frank-Walter Steinmeier. "We need to rely on facts, we need to rely on the situation as it is."

EAST OR WEST?

The IMF, which has 188 member countries, tries to be an independent broker, and must follow strict rules before doling out aid to ensure a country will be able to pay back the money.

But it could face pressure to loosen some conditions or speed up the approval of funds to ensure Ukraine does not collapse, or to keep it out of Russia's orbit. At the same time, the IMF is wary of fronting billions of dollars to a country that has a history of not sticking to its reform pledges.

U.S. lawmakers on Friday said they were working on legislation to authorize financial assistance. They said Congress needed to support Ukraine's democracy and independence and encourage it to strengthen ties to the West, rather than to President Vladimir Putin's Russia.

The IMF wants all countries to work together, and thinks Russia is interested in stabilizing its western neighbor, given the close economic and trade ties between the two countries, Germany's Steinmeier said.

"Right now I can't tell how far Russia has already decided on their readiness to participate in supporting Ukraine," he added. Steinmeier said on Thursday the EU would consider giving Ukraine about $1 billion.

FROZEN AID

Russia promised Ukraine $15 billion in aid after Yanukovich spurned a trade deal with the EU and turned to Moscow instead.

But it halted the aid after Ukraine's parliament voted to strip Yanukovich of his powers.

Some Western diplomats hope Russia will pay its next $2 billion installment, even if the rest does not go through.

Ukraine's finance minister said he hoped the IMF would work on an aid package of at least $15 billion. That figure would be in line with the IMF's last loan to Ukraine in 2010, which was frozen a year later after Kiev failed to implement the required reforms, including removing gas price subsidies.

After reviewing the question of why the last bailout went off track, the IMF's board in December said Kiev should get less money in any future aid package, and should be required to implement more reforms up-front.

The Fund is likely to want reassurances Ukraine's new leaders are more committed to reforms than their predecessors.

One stop-gap option would be to provide Ukraine with money under the IMF's Rapid Financing Instrument, which helps countries with urgent financial needs and often does not have any explicit conditions attached.

According to the rules of that program, Ukraine would be able to borrow up to $1.06 billion in a year. And the IMF's board could approve the program within two to three days after IMF staff reached an agreement with the country's authorities.

(Reporting by Anna Yukhananov and Sabine Siebold; Editing by James Dalgleish and Chizu Nomiyama)

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