Ukraine Govt Clashes With President On Wage Move

KIEV, Ukraine -- Ukrainian ministers warned President Viktor Yushchenko on Thursday the government cannot afford to raise minimum wages and would go to court if he approves a motion to do this passed by parliament last week.

Ukraine's political "odd couple", Yushchenko (L) and Tymoshenko.

Yushchenko indicated his support for the bill, local agencies reported, despite calls by the International Monetary Fund for the measures to be vetoed if it is to decide on releasing funds worth $3.8 billion by the end of the year.

But analysts say the money, vital to cover the budget gap, have become a political football ahead of a presidential election in which Yushchenko, Prime Minister Yulia Tymoshenko and former premier Viktor Yanukovich are all expected to run.

Yushchenko and Tymoshenko have been embroiled in fierce rivalry for 18 months that has blocked privatisation, delayed policy-making and twice put the IMF programme in jeopardy.

As they fought, the former Soviet state has slumped deep into recession -- the IMF expects the economy to contract by up to 15 percent this year after steel exports plunged, the hryvnia currency plummeted and banks struggle to survive.

"If the president has taken such a decision (to support the bill), then he knows where to get the money for it. Unfortunately the finance ministry has not been informed about that and for now we see no such possibility," Acting Finance Minister Ihor Umansky told journalists on Thursday.

Employment Minister Ludmila Denysova said the government would take the issue to the Constitutional Court should Yushchenko sign.

The government has said raising the minimum wage by over 20 percent by the end of next year, as the bill foresees, would ost it an extra $10 billion. The IMF's fourth tranche is part of a $16.4 billion bailout programme.

"These levels (of wages) have obviously been raised because of the political situation, but raised by whom? By the political force that is not part of the majority and parliament accepted such a law," agencies cited Yushchenko as saying late on Wednesday.

"I agree with parliament," he said.

GAMEPLAN

RBS head of CEEMEA Research Tim Ash said there was a tendency for Yushchenko to block anything which Tymoshenko tried to do.

"Indeed Yushchenko's game plan would likely be to use the issue to undermine Tymoshenko's position in the run-up to the presidential election," Ash said.

"Yushchenko's riding to the rescue of public sector employees and pensioners against the prime minister may well play well with the electorate and into the hands of Tymoshenko's opponents," he added.

But other analysts have noted Yushchenko may be pressured to veto the bill by his own previous criticism of the IMF's leniency toward the government.

Polls show he would not pass the Jan. 17 vote into a second round. Tymoshenko and Yanukovich, whose party initiated the wage bill, are likely to face off in the final February vote.

Finance ministry data on the budget showed how necessary the IMF funds are for Ukraine. The budget deficit widened by 47 percent in September alone to 24 billion hryvnias ($3 billion) since the start of the year from 16.4 billion in Jan-Aug.

Budget revenues have fallen sharply, yet spending on benefits has been maintained. Ironically, more strain has materialised through the increase in steel production and exports -- this industry receives Value Added Tax (VAT) rebates from the budget.

Source: Forexyard

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