Ukrainian Finance Minister Resigns Amid Stalled IMF Bailout

KIEV, Ukraine -- Ukraine’s Finance Minister Fedir Yaroshenko resigned as the former Soviet republic seeks to bolster its public finances after talks to resume a $15.6 billion international bailout loan stalled.

Ukraine’s Finance Minister Fedir Yaroshenko

Yaroshenko, 62, said he decided to step down after consulting with Prime Minister Mykola Azarov, according to comments posted today on President Viktor Yanukovych’s website.

The official, who was appointed in March 2010 after Yanukovych won office, didn’t give a reason for his departure.

Ukraine’s current-account deficit has widened on increased natural-gas imports, according to the central bank, which has tapped reserves to support the hryvnia.

A 2010 bailout loan from the International Monetary Fund has been frozen since last March because the government didn’t raise household gas tariffs, a step the lender has demanded to trim losses at the state-owned energy company.

Ukraine wants cheaper gas from Russia instead.

Yaroshenko’s exit probably reflects “broader stresses” in the economy, Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, said by e-mail.

The government is battling “against declining popular support, a weakening budget and external financing position set against a break in relations with the IMF and problems in closing an agreement to deliver cheap gas from Russia.”

Bonds, Swaps

The yield on the government’s dollar bonds maturing June 2016 rose to 11.432 percent from 11.324 yesterday and 6.718 when they began trading July 18, 2011, according to data compiled by Bloomberg.

Credit-default swaps that insure the country’s debt against non-payment have jumped 74.77 basis points this year to 930 points on Jan. 18, according to data provider CMA.

Ukraine’s current-account deficit widened to $8.75 billion in the first 11 months of last year compared with $2.13 billion in the same period of 2010, the central bank said Jan. 4.

Gold and foreign-exchange reserves shrank to $30.4 billion at the end of 2011 from $38.2 billion in August as the regulator supported the hryvnia.

The currency slid to 8.0494 per dollar at 3:23 p.m. today in the capital, Kiev, from 8.0252 yesterday.

Yaroshenko’s resignation won’t weaken the government’s ability to borrow and service its debt, Alexander Valchyshen, head of research at Investment Capital Ukraine in Kiev, said by e-mail.

The government faces $8.2 billion in debt payments in 2012.

Economy to Slow

Ukraine’s economy grew 5.2 percent in 2011, the fastest pace since 2007, helped by a good harvest and exports, Azarov said yesterday.

Growth may slow to 3.9 percent this year, the government forecasts.

Erste Group Bank AG said Jan. 17 the rate may be as low as 1 percent as export demand wanes.

Ukraine’s budget deficit reached 4.3 percent of gross domestic product in 2011, swelled by a 20.6 billion-hryvnia ($2.6 billion) shortfall at state energy company NAK Naftogaz Ukrainy and measures to recapitalize banks, according to the Finance Ministry.

Excluding those effects, the gap was 2.7 percent, the ministry said Jan. 14 on its website.

Talks with Russia over cheaper natural-gas imports failed to make a breakthrough yesterday, with negotiations to continue at an unspecified date, Russia’s gas export monopoly OAO Gazprom said.

Yanukovych wants gas costs cut to $250 per 1,000 cubic meters from $400 in the fourth quarter to avoid implementing the 35 percent increase in household gas tariffs sought by the IMF, which risks alienating voters.

His ruling Party of Regions faces parliamentary elections in October.

Source: Bloomberg