By Natalia Zinets and Richard Balmforth
KIEV (Reuters) - International Monetary Fund chief Christine Lagarde on Sunday lauded Ukraine's economic progress and urged its creditors to join in a deal to restructure $18 billion of its sovereign and quasi-sovereign debt.
Speaking in Kiev alongside Ukrainian President Petro Poroshenko, Lagarde said Ukraine had "surprised the world" by its achievements, and his government's policies had brought "an economy that is showing signs of turning the corner."
In particular, she said, Kiev's fiscal policies and efforts to strengthen the banking sector in difficult circumstances sent a welcoming signal to investors that Kiev had a strong team in place to make the economy grow.
At the same time, she said stamping out corruption was a must if Ukraine's authorities were to re-establish the social contract with the people.
The IMF is Ukraine's key financial savior and Lagarde's unstinting praise for Kiev's efforts gave a boost to Poroshenko after a traumatic week in which street protests against his government's policies to bring peace to the east of the country killed three national guardsmen and injured scores of others.
Turning to the Aug. 27 debt restructuring deal between Kiev and a group of its largest creditors, Lagarde urged all Ukraine's bondholders to support it.
It includes a write-down of 20 percent of the principal owed, a small increase in the coupon on most of the bonds and a four-year extension of the maturity for each bond.
Talks are going on to gain support from the other creditors for a deal which will provide Ukraine with about $15 billion of debt relief, which it can use to improve social benefits for poorer sections of the population and strengthen the war effort against pro-Russian separatist rebels in the east.
"It is really up to all creditors to take advantage of (this) debt restructuring ... We believe it is a very good arrangement ... We doubt very much that anything better could have been obtained," Lagarde said.
Russia, a big creditor, says it will continue to demand full repayment of a $3 billion eurobond falling due in December this year because it considers this debt official, not commercial.
That eurobond was issued by the government of disgraced ex-president Viktor Yanukovich just two months before he fled Ukraine in 2014 in the face of mass protests.
Asked about the Russian bond, Lagarde said: "It is up to the (IMF) board to determine the characterization of one bond or the other and I think it will be for the board to decide."
"Russia will not get any better conditions than these under any circumstances," Poroshenko, standing alongside Lagarde, added.
Poroshenko said he expected the Fund to agree on a third tranche of financial aid for Ukraine in October under a four-year Extended Fund Facility (EFF) program totaling $17.5 billion, after a new IMF mission visits Ukraine from Sept. 22.
An initial slice of $5 billion was disbursed immediately after the program was approved by the IMF in March 2015 and another tranche of $1.7 billion was issued in July.
(Writing by Richard Balmforth; Editing by Mark Trevelyan)