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Published: Sunday April 13, 2014 MYT 12:25:02 AM
Updated: Sunday April 13, 2014 MYT 12:26:08 AM

China backs aid for Ukraine, worried by IMF funding capacity

WASHINGTON (Reuters) - China said on Saturday it backed IMF financial support for Ukraine, but expressed concern about the global lender's funding capacity given the failure of the U.S. Congress to ratify a program of reforms for the institution.

Chinese Vice Finance Minister Zhu Guangyao told a small group of Western journalists on the sidelines of the IMF-World Bank spring meetings in Washington it was a "worry" that more than 85 percent of IMF lending was currently focused on Europe.

Zhu highlighted the importance of reacting quickly to any problems that arise in regions outside Europe, adding: "That is why IMF financial capacity has become so important."

Zhu said China was worried about the potential impact of the Ukraine crisis, especially on Europe, which was already facing risk from deflation.

"This is a geopolitical issue too. We hope that event of geopolitical risk won't cause a big shock for the global economy, particularly for ... Europe's economy."

"That's why we support any action necessary to calm down the tension and to stabilize the economy, including Ukraine's economy," Zhu said.

Russia and the European Union have exchanged recriminations since Russia annexed Ukraine's Crimea region in March and financial aid to Ukraine became a hot topic at a meeting of finance ministers from the Group of 20 leading nations.

In addition to supporting the IMF program for Ukraine, which Zhu said was subject to finalization by the IMF board, China was keeping in close bilateral contact with Kiev, with which it had many areas of cooperation in agriculture and industry.

"We will continually expand our cooperation," Zhu said.

Zhu gave no details of how much China would contribute to the program for Ukraine, but said "voting support for the program means financial support because China is a key member of the IMF."

The IMF has pledged to cover Ukraine's financing needs of $27 billion (16 billion pounds) over the next two years and the head of the IMF's European department, Reza Moghadam, said on Friday that the Fund was able to lend to Ukraine because the country's debt was sustainable.

Moghadam said the exact size of the IMF program would depend on how much other international lenders like the EU would contribute to the government in Kiev.

NEED TO STRENGTHEN IMF

Zhu said the crisis showed the need to strengthen the financial capacity of the IMF and that China hoped the U.S. Congress could move quickly to break an impasse on the issue.

IMF members agreed reforms in 2010 that would double the Fund's resources and give more say to emerging markets, but the

U.S. Congress has failed to ratify the changes.

Some U.S. Republicans have complained the changes would cost too much at a time Washington is running big budget deficits. The reforms also ran afoul of a growing isolationist trend among the party's influential Tea Party wing.

Zhu said there was "deep disappointment and frustration" expressed at the impasse by all participants in Friday's G20 meeting, which set a year-end deadline for U.S. ratification.

"During the period before the end of the year, we are certainly continuing very full cooperation with the IMF and we hope this difficult time - particularly Ukraine - the IMF plays quick and strong action," Zhu said. "We support that."

Some G20 officials have suggested moving ahead on IMF reforms without the United States, although U.S. approval would be necessary for any major decision to go forward because of Washington's controlling share of IMF votes.

Zhu did not respond when asked what China thought should be done if the issue was not resolved by the year end.

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