Ukraine leader pledges to name PM soon, IMF talks loom

Reuters News

12/7/2012 8:21:23 AM - Reuters News

KIEV (Reuters) - Ukrainian President Viktor Yanukovich has promised to name his choice of new prime minister by Sunday and to nominate someone whose first big task will be to try to broker a new loan deal with the International Monetary Fund.

A new program is required to help the former Soviet republic repay foreign creditors $9.1 billion in 2013, up from $6.5 billion this year. This includes $6.4 billion already owed to the IMF which Ukraine says it hopes to refinance.

However, doubts about its ability to repay its debts linger and Credit agency Standard and Poor's cut the country's sovereign rating by one notch to 'B' with a negative outlook on Friday citing concerns about the issue.

Yanukovich accepted the resignation of Prime Minister Mykola Azarov's government on Monday, a move that was widely expected after a parliamentary election on October 28.

He has not indicated who he wants as his next prime minister but has not ruled out re-appointing Azarov, a long-time ally and government veteran who is now acting prime minister.

However, Serhiy Arbuzov, the central bank head, has also been mooted as a strong favorite for the top government post if Yanukovich decides to ring the changes.

Yanukovich was quoted on his website on Thursday night as saying he would nominate his candidate for prime minister before he left on an official visit to India on Sunday.

"I will announce the candidate for prime minister by this Sunday," he was quoted as telling a group of diplomats.

The new parliament, which must vote on Yanukovich's nominated candidate, will convene on December 12.

Azarov, 64, served as Yanukovich's prime minister after the latter won the presidency in February 2010, and is regarded as a safe pair of hands and a political neutral who is not linked to any specific group of billionaire power-brokers in the country.

But his resistance to pressure from the IMF to raise household gas prices - a move that would be unpopular but which the Fund sees as essential to control the budget deficit - prompted it to suspend payments under a stand-by program in early 2011.

VISIT POSTPONED

The principal lender to the cash-strapped country, the IMF on Thursday raised eyebrows after it put back to late January a visit to Ukraine for talks over a possible new loan arrangement. The mission had originally been due to arrive on Friday.

The Fund's local representative, Max Alier, said it had made the decision at the request of the Ukrainian authorities in view of possible government changes.

Some analysts have speculated that Yanukovich might replace Azarov with someone more flexible ahead of the new loan talks with the Fund.

Though Azarov has resisted IMF pressure for a hike in household gas prices and a more flexible exchange rate for the national currency, the hryvnia, Ukrainian analysts and media have so far mostly bet on him being reappointed as premier.

The idea of giving the job to 36-year-old Arbuzov, who has close ties to Yanukovich through his mother who runs a private bank owned by Yanukovich's family, is seen as risky in the current economic circumstances.

Fresh signs emerged on Friday of investors' concerns about Ukraine's ability to service its debts as well as doubts that it can stay on track with any new IMF stand-by program.

Credit agency Standard and Poor's cut the country's sovereign rating by one notch to 'B' with a negative outlook, saying Ukraine might struggle to meet next year's debt repayments. This followed a similar downgrade by rating agency peer Moody's earlier this week.

"The downgrade reflects our opinion that Ukraine faces significant external financing needs in 2013 and beyond, and uncertain prospects for securing sufficient foreign currency," S&P said in a statement.

S&P said that even if Ukraine managed to agree a fresh deal with the IMF, there was a risk it would fall apart like the previous two financing programs.

"In our view, if agreement is reached with the IMF on a new stand-by arrangement, it may be followed by under-utilisation of the program, as happened in 2010-2011," it said.

(Writing By Richard Balmforth; Editing by Andrew Osborn)