Washington (AFP) - The International Monetary Fund approved Wednesday a $17.5 billion (15.5 billion euro) aid plan for crisis-wracked Ukraine, whose economy is reeling from a pro-Russia insurgency in its industrial heartland.

The new loan, with $5 billion to be disbursed immediately, replaces an IMF program less than one year old that proved inadequate to stabilize Kiev's finances as it fights the separatists.

"This new four-year extended arrangement will support immediate economic stabilization in Ukraine and a set of deep and wide-ranging policy reforms aimed at restoring robust growth over the medium term and improving living standards for the Ukrainian people," said IMF managing director Christine Lagarde in a statement.

The IMF aid is part of about $40 billion in planned support from the international community, including bilateral loans and a significant contribution from restructuring the country's debt with private creditors.

The new loan is "based on a comprehensive economic reform program supported by the Fund as well as by additional resources from the international community, the IMF said.

Lagarde said the new IMF program is better-suited to the more protracted nature of Ukraine's balance-of-payments needs and "will provide more funding, more time, more flexibility, and better financing terms."

But she added that the program "is ambitious and involves risks, notably those stemming from the conflict in the east of the country."

Ukraine's government has forecast the economy to remain mired in a deep recession this year, contracting by 5.5 percent.

Much of the potential $40 billion aid package will go toward boosting its gaping foreign currency reserves.

Last week Ukraine's central bank moved to shore up the country's battered currency by hiking interest rates to 30 percent as the government pushed through draconian reforms needed to clinch the new IMF bailout.

The bank said the enormous jump in the benchmark refinancing rate, from 19.5 percent, was aimed at "stabilizing the macroeconomic situation" pending the IMF's decision on the aid.