The head of the International Monetary Fund said Wednesday that Ukraine could lose a $17.5 billion bailout unless it speeds up political reforms and curbs corruption.
"Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported program can continue and be successful," Christine Lagarde, the Washington-based lender's managing director, said in a strongly worded statement.
The crisis has been boiling since the sudden resignation last week of Ukraine's reformist economy minister, Aivaras Abromavicius, to protest alleged influence-peddling and state graft.
His departure highlighted divisions inside the ruling coalition and its patchy performance on reforms promised under the IMF program.
Lagarde, who last week said the reasons for Abromavicius' resignation were troubling, went much further Wednesday, saying she was concerned about slow progress on corruption and "reducing the influence of vested interests in policymaking."
Ukraine's other Western backers have warned it not to repeat mistakes of the past when optimism from 2004's pro-European "Orange Revolution" eroded after a failure to stamp out graft.
"It is vital that Ukraine's leadership act now to put the country back on a promising path of reform," Lagarde said.
If the IMF makes good on its threat, it would freeze all future lending under the $17.5 billion four-year aid program agreed to in March 2015 on the condition that cash-strapped Ukraine deliver drastic reforms. The IMF has disbursed $6.7 billion to date.
The IMF program is the keystone of a roughly $40 billion international bailout of Ukraine that could collapse, with almost certain disastrous consequences for a country reeling from a severe recession and a pro-Russian insurgency in the east.
Ukrainian Prime Minister Arseniy Yatsenyuk responded Wednesday to the IMF threat by renewing his pledge to reform the former Soviet republic.
"The recent political games could cost our country dearly," Yatsenyuk told a meeting attended by foreign security and justice officials, as well as foreign ambassadors, including those from the United States and Germany.
"We will not permit a return of all the old Ukrainian rules," he said after threatening to quit last Friday along with his entire government in an escalation of the political crisis following Abromavicius' resignation.