Strauss-Kahn announced the proposed deal that aims to bolster Ukraine's balance of payments [AFP]

The loan, announced on Sunday, was intended to help Ukraine meet its balance of payments needs, which have been widened by global financial uncertainty and collapsed steel prices.

Dominique Strauss-Kahn, the IMF's managing director, said in a statement: "An IMF staff mission and the Ukraine authorities have today reached agreement, subject to approval by IMF management and the executive board, on an economic programme supported by a $16.5bn loan under a 24-month stand-by arrangement.

"Consideration by the board would follow approval of legislative changes to Ukraine's bank resolution programme."

Reforms needed

Ukraine's finance ministry said that the country would have to set a balanced budget and introduce reforms to support the banking sector to receive the loan.

The package is 800 per cent of Ukraine's IMF quota - based on its size in the world economy.

Typically nations can take up to 300 per cent of their quota.

Strauss-Kahn said: "The authorities' programme is intended to support Ukraine's return to economic and financial stability, by addressing financial sector liquidity and solvency problems, by smoothing the adjustment to large external shocks and by reducing inflation.

"At the same time, it will guard against a deep output decline by insulating household and corporations to the extent possible."

Hungary aid

The IMF and the European Union (EU) have also reached an agreement with Hungary on a broad economic rescue package, including substantial financing to steady its battered currency.

Hungary needs help from the IMF to restore investors' confidence in its currency and bonds, after its financial markets plunged in the past weeks.

Foreign investors have dumped Hungarian assets on worries over the country's banking system and the financing of its large external debt.

The IMF did not release the size of the financing package but analysts said it should be over $10bn based on the IMF's agreement in principle with the Ukraine.

Residents in Budapest, Hungary's capital, expressed mixed reactions to the decision.

"Generally if someone takes out a loan it means there is trouble. And the help of IMF around the world has not been one that has really helped on the long run," said Mihaly Friss.

"If they help Hungary I guess it will help us in some way to fight this crisis," said Zalan Szitnyai.

With the highest interest rate in the EU at 11.5 per cent after a 300 basis point emergency rate hike last week, Hungary relies heavily on foreign capital inflows to finance its debt and deficits.

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