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Carrot and stick: Money central to latest US and international response to Russia and Ukraine

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WASHINGTON - The international community gave a financial boost to a feeble Ukraine on Wednesday as Republican lawmakers in the U.S. sought to increase the economic pressure on Russian President Vladimir Putin in an effort to deflate Moscow's designs on its neighbour.

The board of the International Monetary Fund approved a $17 billion loan package to Ukraine, which has been strapped for cash amid the instability that followed Russia's annexation of Crimea. The two-year deal came with strings tied to economic reforms in Ukraine that could strain its interim government and Ukrainian households.

In the Senate, Republican lawmakers dismissive of President Barack Obama's response to Putin's actions in the region proposed even more sanctions on Russian banking and energy sectors. Besides economic action, the lawmakers suggested that the U.S. provide weapons to Ukraine as officials there worry about a possible Russian invasion.

Vice-President Joe Biden shared such concerns, telling the Atlantic Council on Wednesday that there were parallels between Russia's interference in Ukraine and the world wars of the last century.

"What Russia has done violates not just Ukrainian sovereignty but the fundamental principle that European borders cannot, will not be changed through political intimidation or military force," said Biden, who met last week with leaders of Ukraine's government in Kyiv. He also criticized Ukraine, saying corruption in its government was corrosive and that many of its institutions were obsolete.

Ukraine, a nation of 46 million, is in turmoil after Russia annexed Crimea. Putin has massed 40,000 troops on Russia's border with Ukraine in what many fear is the first step to an invasion. Russia's actions have created a standoff with the United States and many European nations.

The IMF loan package, a two-year deal, comes as Ukraine's interim government finds itself caught between the demands of international creditors and a restive population that has endured decades of economic stagnation, corruption and mismanagement. When the IMF pledged assistance in March, it demanded that Ukraine raise taxes, freeze the minimum wage and raise energy prices as a requirement of the aid.

The $17 billion loan would pave the way for Ukraine to receive an additional $15 billion in assistance pledged by the World Bank, the European Union, Canada, Japan and other European entities, and $1 billion in loan guarantees from the U.S. As part of the deal, Ukraine will be required to use some of the loan to repay money it already owes the monetary fund.

Eight Republican senators, led by Senate Minority Leader Mitch McConnell, unveiled a package of penalties on Russians, assistance for NATO and a plan for exporting U.S. natural gas. The senators said they hoped to secure Democratic support and, at a minimum, force the White House to develop a cohesive strategy rather than its ad hoc response.

"Without being overly partisan, I'm deeply disappointed with the tepid response to Russian aggression," said McConnell, who faces re-election in November. The package he and other Republicans backed came amid blistering criticism of Obama's foreign policy going back to his strategies in Syria and Libya.

"The president has an uncanny ability of underestimating every crisis and being late," said Sen. Lindsey Graham, R-S.C., who also is seeking another term this fall. His colleague Sen. Kelly Ayotte, R-N.H., labeled the administration response to Russia as "insufficient, tepid, too timid."

A day earlier, Treasury Secretary Jack Lew defended the administration and EU sanctions, saying there had been "quite a substantial deterioration in the Russian economy."

The Senate GOP legislation would accelerate work on a missile defence system in Europe and provide missile defence support to NATO allies, while imposing penalties on four Russian banks, energy monopolies such as Gazprom and the Russian arms dealer Rosoboronexport. It would provide $100 million in direct military aid to Ukraine, including anti-tank and anti-aircraft weapons and small arms.

The bill also calls for all senior Russian officials and their companies to be cut off from the world financial system if Russia makes any further military incursion into Ukraine. Russian banks would be blacklisted from the U.S. financial system.

In his remarks to the Atlantic Council, Biden said the international community should not end its work in Ukraine by challenging Russia's aggression. Ukraine itself has much to do, he said.

"This needs to be a government that exists to serve the people, not enrich the powerful," the vice-president said. "There is a common view, East and West, that the government has to begin to deliver, that corruption is incredibly corrosive. It may not be politic to say, but it is a reality."

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Associated Press writers Deb Riechmann, Brad Klapper, Josh Lederman and Douglass K. Daniel contributed to this report.

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