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Ukraine Backs '09 Budget Deficit Despite IMF Rules

President Viktor Yushchenko (left) with Central Bank chief Volodymyr Stelmakh
KYIV (Reuters) -- Ukraine's fractious parliament has adopted a 2009 budget with a 3 percent deficit -- at odds with conditions set by the International Monetary Fund for an $16.5 billion economic rescue package.

The 450-seat chamber, with a long record of erratic behavior, passed the budget with the minimum number of votes after several failed ballots.

It also demanded the dismissal of Ukraine's Central Bank chief a week after the hryvnia currency hit a record low and fired outright the head of the privatization agency.

The global financial crisis has battered industry and consumers in the ex-Soviet state, prompting authorities to seek the IMF loan. The IMF had made a deficit-free budget a condition for the package.

Many deputies said figures in the proposed budget were unrealistic: 0.4 percent growth against a 5 percent contraction forecast by the Economy Ministry and 4 percent by the World Bank.

The head of parliament's budget committee, Mykola Derkach, acknowledged that the budget was "very optimistic. But we must adopt the budget. It is a step in overcoming the crisis."

An aide to President Viktor Yushchenko, Oleksander Shlapak, said this week new talks with the IMF would now be needed.

"I cannot say how they will end, but think that the chances of winning them over are 50-50," he said.

Other conditions attached to the IMF credit include maintaining currency reserves at $27 billion and strict limits on expansion of money supply.

Symbolic Move

The move against Central Bank head Volodymyr Stelmakh was symbolic as only President Viktor Yushchenko can remove him, subject to the chamber's approval and he has shown no inclination to do so.

Even if Stelmakh stepped down, analysts said, parliament was unlikely to secure enough votes to elect a successor.

"I doubt very much this parliament would come up with a broadly acceptable new candidate," said Vasyl Yurchyshyn of the Razumkov Center think tank.

The assembly was, however, empowered to sack the head of the State Property Fund, Valentyna Semenyuk, who had remained in her job since 2005 despite a government attempt to remove her.

Semenyuk opposed several key selloffs. Privatization in 2008 was virtually at a standstill, bringing in 5 to 10 percent of the 9 billion hryvnias ($1.15 billion) of planned revenue.

Stelmakh, 69, has twice been Central Bank chairman, from 2000 to 2002 and from December 2004. Tymoshenko, at odds with Yushchenko for months on a wide variety of issues, demands Stelmakh's dismissal and says the president should also quit.

The hryvnia sank to a historic low of 10 to the dollar last week, about half its value in September. Repeated Central Bank intervention has since lifted it to about 7.6.

The hryvnia's plunge has jolted confidence in the banking system and officials warn of mass failure to repay debt.

Other indicators have laid bare the effects of the crisis. The economy shrank 14.4 percent and industrial output fell nearly 30 percent year-on-year in November as demand for key steel exports dried up and thousands were sent on unpaid leave.

Data released on December 26 showed the current account deficit deteriorating to $11.7 billion in January-November from $10.5 billion in the first 10 months of the year.

That figure has been widening due to steep increases in the price of imported gas. Ukraine has yet to conclude a 2009 pricing and supply deal with Russia and President Dmitry Medvedev has threatened Ukraine with sanctions if it fails to pay what Moscow says are $2 billion in arrears for gas.