IMF in pounds 236m boost to avert Ukraine crisis

The world's leading industrial democracies opened a conference in Canada yesterday intended to encourage economic reform in former Soviet Ukraine and prevent the country from turning into eastern Europe's biggest security nightmare. Representatives from Russia and the Central Asian state of Turkmenistan, to which Ukraine owes about dollars 3bn (pounds 1.9bn) in unpaid energy bills, joined the Group of Seven (G7) western countries.

Ukraine has sunk into a serious economic crisis since declaring independence in 1991, with collapsing industrial production matched by supersonic inflation rates and an almost total absence of market-based reforms. President Leonid Kuchma, elected in July, described Ukraine's economy last week as being in an even worse state than after the Second World War.

Ukraine received a dollars 370m (pounds 236m) loan boost on Wednesday, its first, from the International Monetary Fund. The G7 countries promised dollars 4bn in aid at their Naplessummit in July on condition its leaders put together a comprehensive reform programme.

Mr Kuchma, director of a giant missile and space production plant in the Soviet era, presented a reform plan to the Ukrainian parliament two weeks ago, which has won applause from Western governments. 'Our main objective is to tell the Ukrainian government that they are on the right track,' said Scott Clark a junior Canadian finance minister. However, as in Russia, the introduction of radical economic reforms is no easy matter in Ukraine, with parliamentary deputies suspicious of change. Even Mr Kuchma, when he was campaigning for the presidency, denounced 'the Western model of forced liberalisation' saying it would turn Ukraine into the backyard of Europe.

In a recent report, the Geneva-based International Labour Organisation said Ukraine had 'the highest level of hidden unemployment in eastern and central Europe, the lowest minimum wage, possibly the greatest degree of poverty and the most alarming growth of unemployment'.

Western countries, sensitive to the criticism that their aid efforts have concentrated on Russia to the virtual exclusion of other former Soviet republics, decided earlier this year to inject more urgency into their policies towards Ukraine. That decision was prompted by the awareness that intercontinental nuclear weapons remain on Ukrainian soil and that friction persists in relations between Ukraine and Russia.

Parliamentary and presidential elections in Ukraine this year have revealed a profound division between the Ukrainian nationalist west and the Russian-leaning east and south.

The fate of the Crimean peninsula, historically Russian but transferred to Ukraine in 1954, remains in the balance, with the Russian majority demanding more autonomy than the Ukrainian government is prepared to concede.