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Will New U.S. Aid and an IMF Bailout Be Enough to Save Ukraine?

The White House promised Ukraine $75 million in new aid and the IMF approved a $17.5 billion loan for the country's struggling economy Wednesday. But it's not clear if either measure will be enough to save Ukraine.

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Ukraine got a desperate $17.5 billion shot in the arm Wednesday from the International Monetary Fund. But the biggest threat to the country’s economy -- fighting with Russian-backed separatists in eastern Ukraine -- still looms large, and a new U.S. aid package falls short of what Ukrainian President Petro Poroshenko says he needs to defeat them.

The White House announced Vice President Joe Biden told Poroshenko the United States would send an additional $75 million for equipment to help the country as it struggles with a pro-Russian insurgency backed by Russian President Vladimir Putin. The money will pay for drones, counter-mortar radar, Humvees, radios, and medical kits, among other equipment, but not for arms.

The Treasury Department also announced new sanctions against eight Ukrainian separatists, three former officials from the ousted regime, and a Russian bank. The European Union has not followed suit, but German Chancellor Angela Merkel warned last week that if the cease-fire was “seriously violated,” the European Commission was ready to impose more restrictions.

Ukraine got a desperate $17.5 billion shot in the arm Wednesday from the International Monetary Fund. But the biggest threat to the country’s economy — fighting with Russian-backed separatists in eastern Ukraine — still looms large, and a new U.S. aid package falls short of what Ukrainian President Petro Poroshenko says he needs to defeat them.

The White House announced Vice President Joe Biden told Poroshenko the United States would send an additional $75 million for equipment to help the country as it struggles with a pro-Russian insurgency backed by Russian President Vladimir Putin. The money will pay for drones, counter-mortar radar, Humvees, radios, and medical kits, among other equipment, but not for arms.

The Treasury Department also announced new sanctions against eight Ukrainian separatists, three former officials from the ousted regime, and a Russian bank. The European Union has not followed suit, but German Chancellor Angela Merkel warned last week that if the cease-fire was “seriously violated,” the European Commission was ready to impose more restrictions.

The U.S. aid came as the IMF approved the new $17.5 billion bailout for Kiev, replacing a plan put in place last year when it became clear Ukraine needed more money after months of ongoing fighting. The announcement also unlocks further aid from the Europe Union, the U.S., and other countries, which the IMF expects will raise the total to $40 billion over four years.

The money is aimed at replenishing Kiev’s nearly empty coffers and reassuring investors and depositors that the country is not headed for bankruptcy. But if fighting flares again in eastern Ukraine, it’s unclear whether even the expanded program will be enough to right the economy, which shrank by almost 12 percent last year.

If the conflict does resume, Ukraine is still without American firearms. Poroshenko, some Republican and Democratic lawmakers, and officials within President Barack Obama’s administration all have urged the president to supply lethal aid. Secretary of State John Kerry told Senate Foreign Relations Committee lawmakers Wednesday that lethal aid is “under consideration” but gave no indication of a policy change. Additionally, White House spokesman Josh Earnest told reporters the president was considering the risks associated with sending guns but said “there is not a military solution to this problem.”

Moscow has warned the United States that sending weapons would escalate tensions.

Right now, a cease-fire between Ukrainian forces and pro-Russian separatists — backed by Russian troops and supplies — is holding, but the presence of Russian equipment on Ukraine’s battlefields put Poroshenko at a strategic disadvantage as fighting raged over the last year. According to the U.N., more than 6,000 people have died as a result of the conflict.

IMF Managing Director Christine Lagarde acknowledged the threat of renewed conflict made the bailout no sure bet.

“The program is ambitious and involves risks, notably those stemming from the conflict in the east of the country,” Lagarde said in a statement after the bailout was approved. “I am heartened that the cease-fire agreed last month in Minsk seems to be largely holding for now, and hope that a further loss of life can be avoided.”

Robert Kahn, a senior fellow at the Council on Foreign Relations who has worked for the World Bank and the IMF, said this new bailout, like the first one, is “unlikely to be enough.”

“This will be subject to huge pressures given the conflict and will likely go off course fairly quickly and will need to be renegotiated again,” Kahn said.

Lagarde acknowledged these risks with uncharacteristic candor for an IMF official. She wished Ukrainian leaders well: “With continued firm implementation, there is reasonably strong prospect of success.”

Photo Credit: John Thys

Twitter: @jtrindle

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