WASHINGTON, Nov 06, 2008 (AFP) - The International Monetary Fund on Wednesday approved a 16.4 billion dollar (12.8 billion euro) loan aimed at rescuing Ukraine from a deepening financial crisis, officials said.

The IMF said it hoped the two-year agreement for Ukraine would curb inflation to single digits and shore up banks that are suffering in concert with the global credit crunch.

"The Ukrainian economy, especially the banking system, is experiencing considerable stress," said IMF deputy managing director Murilo Portugal in a statement.

"Falling prices for Ukraine's major export, steel, have led to a substantial deterioration in Ukraine's current account outlook."

The IMF approval, made under its "fast-track emergency financing mechanism," means that 4.5 billion dollars will be immediately disbursed, Portugal said.

Some banks have reportedly frozen customers' accounts while untold numbers of Ukrainians have rushed to withdraw their cash, fearing the worst as job losses spread.

The banking sector has been hit hard due to its increased exposure to foreign loans since the Orange Revolution protests of 2004 brought to power a pro-Western leadership and economic reformers pressed for more European integration.

Portugal said the government plan and the IMF loan "aims to restore financial and macroeconomic stability by adopting a flexible exchange rate regime with targeted intervention."

On Friday, Ukraine's parliament approved legislation clearing the way for the IMF loan, and establishing a stabilization fund to help ailing banks and companies unable to service their foreign debts due to the worldwide financial crisis.

Guarantees for bank deposits will be increased so as to bolster confidence in the banking system, and the government will be able to take a stake in lenders if necessary.

In addition, Ukraine's budget will be tightened and spending cut.

Portugal said key parts of the plan include "a pre-emptive recapitalization of banks, and a prudent fiscal policy coupled with tighter monetary policy."

"Resolute implementation of the program should help reduce inflation to single digits by the end of the program," he added.

Ukraine has been among the countries hardest hit by global financial turmoil as a plunge in the price of steel, its main export, exacerbates a credit crunch and a sharp fall in stock prices.

At the same time, the downturn has become increasingly politicized, with the president earlier in the week blaming the government for the country's problems.

Portugal praised the Ukrainian government's plan, calling it "a strong and comprehensive package of measures to address the challenges Ukraine is facing and the Fund has provided commensurate financial assistance."

Last month, Olexandre Chlapak, a senior figure with the presidential administration, said Ukraine faced bleak prospects for the coming year.

It could expect "a fall in GDP, a drop of up to 40 percent in foreign demand for Ukrainian products, and zero industrial growth, or in the best case, two to three percent."

chr-ksh/ao