The International Monetary Fund approved $16.4bn in emergency funding for Ukraine to stabilise the nation's economy, which is being pummelled by falling export values, rising inflation and the effects of the global financial meltdown.

The two-year agreement allows the Eastern European country to receive $4.5bn immediately in exchange for agreeing to a series of financial reforms.

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Among them are agreements governing flexible exchange rates, higher funding for unemployment insurance and banking recapitalisation.

"The Ukrainian economy, especially the banking system, is experiencing considerable stress," IMF deputy managing director and acting chairman Murilo Portugal said in a statement.

"Falling prices for Ukraine's major export, steel, have led to a substantial deterioration in Ukraine's current account outlook."

The IMF has already agreed to lend Iceland $2.1bn and is in talks with Hungary for an estimated $10bn to $12.5bn in loans.