Ukrainian politician and former Prime Minister Yulia Tymoshenko (front left) walks to attend a news conference in Kiev, Ukraine, yesterday. Photo: Reuters

Ukraine won a €20 billion international financial lifeline yesterday, rushed through in the wake of Russia’s annexation of Crimea, while Moscow’s economy minister acknowledged that his country’s growth would slow dramatically as funds flee abroad.

The figure includes a €10-13 billion standby credit for Kiev announced by the International Monetary Fund in return for tough economic reforms that will unlock further aid from the EU, the US and other lenders over two years, effectively pulling Kiev closer to Europe.

Raising the political temperature, former prime minister Yulia Tymoshenko, released from jail last month after her arch-rival Viktor Yanukovych fled from power in Kiev, announced she would run again for president in an election on May 25.

The declaration by the flamboyant Tymoshenko, 53, set up a contest with boxer-turned-politician Vitaly Klitschko, who has also announced his candidacy, and other figures who have emerged to contend for top posts after four months of political turmoil.

Tymoshenko, who appeared without the blond peasant hair braid that has been her trademark for years, pledged to fight “lawlessness” and said she hoped to recover Crimea. But she remains behind her two rivals in opinion polls.

Yulia Tymoshenko announces that she will run for president in May

The IMF deal was a boost for the pro-Western government that replaced the Russian-backed Yanukovych last month, prompting Moscow to seize the Black Sea peninsula.

“The financial support from the broader international community that the programme will unlock amounts to €20 billion over the next two years,” an IMF statement said.

The IMF said it did not see a need to restructure Ukraine’s debts for now. President Barack Obama said the IMF agreement was a major step forward that would help stabilise Ukraine’s economy.

China, which failed to back its ally Russia in a vote on Crimea at the UN this month, said it would play a “constructive role” on financial aid for Ukraine, but stopped short of saying whether it would participate directly.

The European Bank for Reconstruction and Development said it could pump up to a billion euros a year into Ukraine over the next few years.

The Ukraine crisis has triggered the most serious East-West confrontation since the end of the Cold War a quarter of a century ago, deepening the slump in Ukraine’s economy, centred on coal and steel production, gas transit and grain exports.

Without IMF-mandated austerity measures, the economy could contract by up to 10 per cent this year, Prime Minister Arseny Yatseniuk told parliament, explaining why his government had bowed to the Fund’s conditions.

“Ukraine is on the edge of economic and financial bankruptcy,” he said.

Kiev opened the way for the IMF deal by announcing on Wednesday a radical 50 per cent hike in the price of domestic gas from May 1 and promising to phase out remaining energy subsidies by 2016, an unpopular step Yanukovych had refused to take.

The Prime Minister, who took on the job a month ago saying his government was on a “kamikaze” mission to take painful decisions, said the price of Russian gas on which the nation depends may rise 79 per cent – a recipe for popular discontent.

The IMF statement said a key element of the programme would focus on cleaning up Ukraine’s opaque energy giant Naftogaz, which imports gas from Russia’s Gazprom. Naftogaz’s chief executive was arrested last week in a corruption probe.