Ukraine FM resigns as economy suffers

[January 19, 2012]  KIEV, Ukraine (AP) -- Ukraine's finance minister resigned Wednesday amid pressure over a blocked $15 billion International Monetary Fund loan and the president appointed the head of the state security service and former economy minister -- a longtime ally -- to replace him.

Fedir Yaroshenko, 62, didn't explain why he was resigning, saying in televised comments only that he hoped his successor would make few mistakes and work effectively. But analysts say the resignation hammers home Ukraine's tough economic position and suggests President Viktor Yanukovych is looking to deflect blame over economic hardships onto his Cabinet ahead of parliamentary elections this fall.

Ukraine's finance minister resigned Wednesday amid pressure over a blocked $15 billion International Monetary Fund loan and the president appointed the head of the state security service and former economy minister -- a longtime ally -- to replace him.

Fedir Yaroshenko, 62, didn't explain why he was resigning, saying in televised comments only that he hoped his successor would make few mistakes and work effectively. But analysts say the resignation hammers home Ukraine's tough economic position and suggests President Viktor Yanukovych is looking to deflect blame over economic hardships onto his Cabinet ahead of parliamentary elections this fall.

Yanukovych appointed his longtime ally Valery Khoroshkovsky, a media magnate who had headed Ukraine's Security Service for the past two years. Khoroshkovsky also was the country's economy minister in Yanukovych's government in 2002-4.

Yanukovych did not explain his decision, but some observers said that Khoroshkovsky's loyalty to the president appeared to be a factor in the decision. Under Khoroshkovsky's leadership, the security service launched a slew of new criminal investigations against already jailed former Prime Minister Yulia Tymoshenko in a case the West has called politically motivated.

Ukraine's budget is under stress after the IMF froze an aid program last spring over Kiev's refusal to raise household gas prices and thus cut government expenditures. The central bank has had to spend its reserves to support the Ukrainian currency, the hryvna.

Yanukovych is reluctant to take the painful measure of raising household gas bills ahead of parliamentary elections later this year and is lobbying Moscow for cheaper gas.

A deal with Russia could allow Kiev to maintain domestic gas prices but talks have stalled as Moscow seeks control over Ukraine's pipeline network in exchange for a discount. Much of the gas that Russia exports to Western Europe travels through the Ukrainian network.

Yaroshenko's resignation "probably reflects broader stresses at the moment in the economy," said Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London.

"The government battles 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," he said.

Yanukovych has repeatedly criticized Prime Minister Mykola Azarov over economic and other policies and some observers say that Yaroshenko's resignation may be followed by Azarov's departure as Yanukovych seeks to deflect criticism of his rule ahead of parliamentary elections this fall.

"Azarov may in the end serve as a lightning rod and leave the way for a politician with a more positive image who will begin to implement populist social policies before elections in order to raise the popularity of the ruling party," said Anatoly Baronin, head of the Da Vinci Analytic Group in Kiev.

[Associated Press; By MARIA DANILOVA]

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