Lima (AFP) - Ukraine is confident the international community will not let Russia hold "hostage" an IMF bailout package that Kiev needs to avoid default, a source close to the Ukrainian government said Saturday.

Russia has been blocking the International Monetary Fund's $17.5-billion rescue plan for Ukraine, which hinges on Kiev's ability to restructure billions of dollars in debt, including some held by Moscow.

"There's little appetite in the world to let Russia, after all that has happened, take hostage the IMF program for Ukraine. It's not going to happen," the Ukrainian source said on the sidelines of the IMF and World Bank annual meetings in Lima, Peru.

Moscow has refused to budge on the repayment of $3 billion it issued to Russian-backed president Viktor Yanukovych in the months preceeding his February 2014 ouster by waves of pro-European protests.

Although Ukraine struck a deal in August with its four largest commercial bondholders to ease repayment on some $18 billion in debt, Russia's intransigence has threatened to scupper the entire bailout.

If the impasse is not resolved, Ukraine is set to default when the Russian-held bond comes due in December.

The rescue funds are vital to keep Ukraine's new pro-Western government afloat and cushion the blow of a raging pro-Russian separatist war in the east.

Russia calls the $3-billion bond it holds a government-to-government loan whose repayment is mandated by international law. But Ukraine says it should be treated as a commercial loan, which would enable the IMF rescue to go ahead.

Ukrainian Finance Minister Natalie Jaresko met her Russian counterpart Anton Siluanov in Lima, but the two failed to resolve the standoff.

"The Russian side say that they would be ready to consider options for this if (Western) sanctions on Russia are relaxed," said the source, adding that Russia had been given a two-week extension on a Wednesday deadline to decide how to proceed.

"The best for Russia is to join other investors, so they would gain a value recovery instrument that could allow them to regain if there's growth in the (Ukrainian) economy," added the source.