Financial Times, February 11, 2000.

The International Monetary Fund is broadening its investigation into alleged irregularities at Ukraine's central bank.

Newly uncovered documents show the central bank engaged in financial manoeuvres in 1997 and early 1998 to dress up reserves in order to qualify for continued Fund credits.

It also secretly invested its reserves in risky ventures, against Fund advice.

The disclosures call into question the basis on which Ukraine secured past IMF funds, and could hinder the cash-strapped government's efforts to obtain extra international aid next week.

Ukraine, the former Soviet republic with a population of 50m, desperately needs additional funding to cope with $3.1bn (£1.9bn) in loan payments due this year. It is the third-largest recipient of direct US aid, after Israel and Egypt. According to documents seen by the Financial Times, the central bank moved at least $600m in hard currency reserves through Credit Suisse First Boston, the Swiss-owned investment bank, in several transactions during 1997 and early 1998.

The funds were then put to a variety of uses, many of which placed reserves at risk or tied them up in illiquid investments. In at least one instance the cash was used to buy the government's own Treasury bills, helping prop up the domestic debt market. In another, the central bank shuffled $150m through several accounts to make its reserves seem larger than they were.

An IMF statement said: "The Fund staff intends to examine them with the authorities, and will ask that an investigation into alleged transactions be included in the special audit [of the central bank] that is already under way."

CSFB declined to discuss its dealings with Ukraine's central bank, or even confirm that it has been a frequent client of the bank. But a spokesman said it would review whether to open its books to investigators if requested to do so by a customer.

The IMF said it had become aware in July or August 1998 - during negotiations for the $2.5bn facility - that substantial portions of Ukraine's reserves had been wrongly "encumbered", or tied up.

In response, the Fund said, it tightened the definition of usable reserves, moved to free up the encumbered funds and instituted quarterly audits of the central bank's reserves.

In one of a number of transactions detailed in the documents seen by the FT, the central bank - the National Bank of Ukraine - deposited $150m in a Cyprus-based subsidiary of CSFB in November 1997. That money was moved to a small Ukrainian bank, which in turn lent it back to the central bank.

The NBU has declined repeated requests for interview on the transactions. The government of President Leonid Kuchma has repeatedly denied any wrongdoing and called the allegations "a distortion of the truth".

But in testimony last May to a parliamentary committee investigating the payments, made available to the FT, the central bank admitted it had double-counted the $150m in order to meet IMF reserve requirements and secure further financing.