IMF says Ukraine needs modified bailout if it loses the east

WASHINGTON (Reuters) - Ukraine's loss of its territory in the east would force the International Monetary Fund to re-design its $17 billion bailout of the country, and would require additional financing, the Fund warned on Thursday. The IMF also said a deterioration in relations between Ukraine and Russia, which buys a quarter of Kiev's exports, could further hurt Ukraine's economy and also force an adjustment to its bailout, approved by the IMF board on Wednesday. "A long-lasting disruption of relations with Russia that depresses exports, investment, and growth, or a loss of economic control over the East that reduces budget revenue would require a significant recalibration of the program and additional financing, including from Ukraine's bilateral partners," the IMF said in a staff report released on Thursday. In outlining the risks to the program, the IMF also warned of uncertainty about the Ukraine government's commitment to a wide program of reforms, many of them politically unpopular, especially after presidential elections on May 25. The IMF bailout should unlock another $15 billion in additional aid from Ukraine from the World Bank, the European Union, Canada and other donors, intended to help Ukraine stabilize its economy in the middle of its worst civil turmoil since independence in 1991. Ukraine's pro-Western leaders conceded on Wednesday they were "helpless" to counter the takeover of government buildings and police stations to the separatists in the Donbass coal and steel belt in the east, source of around a third of the country's industrial output. Ukraine says Russia is behind the unrest, but Russia denies having any part in the rebellion. The unrest follows months of anti-government protests and Russia's annexation of the Crimea region, which had already pushed Ukraine's economy to the brink of bankruptcy and into recession. The IMF acknowledged Ukraine no longer has control over Crimea, but said the region accounts for only 3.7 percent of Ukraine's national output, and its annexation should not hurt the central government's ability to carry out economic reforms. (Reporting by Anna Yukhananov; Editing by Andrea Ricci and David Gregorio)