The agreement in principle -- worth the equivalent of 10.8-13.1 billion euros -- imposes tough economic conditions that will alter the lives Ukrainians who have grown accustomed to the comforts of Soviet-era subsidies and social welfare benefits.

But it also appears to herald a fundamental shift in Kiev from a reliance on Russian help to save a crumbling system to a commitment to the types of free-market efficiencies that could one day bring Ukraine far closer to the West.

"Ukraine's macroeconomic imbalances became unsustainable over the past year," the Fund's Ukrainian mission chief Nikolai Georgiyev told reporters.

The IMF’s rescue will form the heart of a broader package released by other governments and agencies amounting to $27 billion (19.6 billion euros) over the next two years.

Georgiyev said the actual size of the "standby arrangement" would be determined only once the new Western-backed leaders in Kiev made the first firm steps to implement reforms the Fund had sought in vain from the cabinet of Kremlin-backed president Viktor Yanukovych.

The Fund has made an immediate end to Ukraine's costly gas subsidies, its main condition for the program's approval.

It also wants the central bank to stop propping up the Ukrainian currency and for the government to cut down on corruption and red tape.

The IMF's announcement came one day after Ukraine's state energy company Naftogaz said it would increase domestic heating gas prices by 50 percent on May 1.

NJF/NJF