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U.S. eyes funding for Ukraine alongside IMF program

By Lesley Wroughton and Steve Holland

WASHINGTON (Reuters) - The United States said on Monday it was ready to provide financial assistance to Ukraine to complement a loan program from the International Monetary Fund in the aftermath of the ouster of Ukraine's president Viktor Yanukovich.

Two days after the dramatic departure of pro-Moscow Yanukovich after bloody clashes in Kiev, the White House sought to apply subtle pressure on Russia to let events unfold in Ukraine without interfering. This message has been delivered in recent days from President Barack Obama on down.

Signaling U.S. concerns that Russian intervention could trigger more violence, White House spokesman Jay Carney told reporters: "It is certainly not in Russia's interests for there to be violence and instability in Ukraine."

With Kiev in desperate need of cash as it charts a new future, U.S. officials said Washington would be willing to provide some assistance in addition to an International Monetary Fund program which could go into effect after a new government is set up.

International financial diplomats told Reuters that one option under review to help prop up Ukraine's ailing economy was a bailout that would include IMF money as well as bilateral loans and guarantees from governments.

It was unclear whether Russia will be willing to go along with an international bailout although the financial diplomats said Moscow was part of the conversation.

The fall of Yanukovich has cast doubt on a $15 billion bailout for Ukraine from Moscow, which said it would not recognize the country's interim leadership because it came to power in an "armed mutiny."

Finance ministers from the Group of 20, including Russia, met in Sydney over the weekend and Ukraine's economic plight was discussed on the sidelines. Ukraine in the past has struggled to comply with the requirements of IMF programs.

SHORT TERM RELIEF

EU officials said it was highly unlikely Europe, the United States or anyone else would be willing to put up large sums of money until Kiev signs on to an IMF program, which would demand tough reforms that Ukraine has been unable to implement.

Ukraine could win smaller bilateral loans, possibly coordinated by the EU, to give it short-term relief, according to EU officials.

U.S. officials cautioned that discussions on funding assistance to Ukraine were still at an early stage. The State Department said British Foreign Secretary William Hague would visit Washington on Tuesday to discuss developments in Ukraine with U.S. officials and the IMF.

A senior State Department official said it was crucial that any funding go through the IMF, which has the experience to help countries implement difficult economic reforms.

U.S. Treasury Secretary Jack Lew made clear on Sunday that Ukraine should begin discussions with the IMF as soon as a transitional government is in place in Kiev. Under IMF rules, the institution can only lend to elected governments although it can begin negotiations before then.

Ukraine's finance ministry said it needed $35 billion in foreign assistance over the next two years and called for a donor conference to raise money. French Foreign Minister Laurent Fabius said a donor conference was under consideration and "this should be worked out in the coming days."

Ukraine's dollar bonds rallied on Monday and its five-year debt insurance costs tumbled as hopes grew that the country would win assistance from Western donors.

State Department spokeswoman Jen Psaki said Ukraine was going through an important transformation that should be supported.

"We have a real opportunity to move beyond the current crisis and pursue a more democratic future," Psaki told a daily briefing, adding that the United States believed Yanukovich had lost legitimacy.

(Editing by David Storey)

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