KIEV, Sept. 26 ??“ Ukraine??™s government is seeking to borrow up to $1 billion internationally for up to 30 years as a means to finance its growing budget deficit, financial industry sources said Tuesday.

The plans underscore Ukraine??™s return to capital markets for borrowing in a dramatic reverse of the policy over the past 1.5 years, during which the government had been trying to cut debts.

???The Finance Ministry is reported to have requested bids for a new eurobond issue of up to $1 billion,??? Timothy Ash, an economist at Bear Stearns International in London, said. ???They talk of plans for a new 30-year issue!???

The 30-year maturity would become the longest duration of any debt instrument ever issued by the Ukrainian government.

The plans to increase borrowing come as the government of Prime Minister Viktor Yanukovych seeks to increase the budget deficit, while privatization revenue has been falling short of projections.

???This comes as privatization revenues have tailed off, and Ukraine has spent the Kryvorizhstal cash, and has increased debt financing needs,??? Ash said.

Ukraine was able to cut foreign debt over the past 18 months after selling Kryvorizhstal, the country??™s largest steel producer, for $4.9 billion to Mittal Steel in October 2005. The money has been mostly used to finance the budget deficit and to cut debt.

Ukraine??™s overall debt fell to UAH74.2 billion, or $14.7 billion, as of Jan. 1, down from UAH85.4 billion as of Jan. 1, 2005, analysts said.

The Yanukovych government, formed last month following a general election in March, argues that the increased deficit is needed to boost economic growth.

???There is a major need in resources for conducting reforms in all spheres, for development of infrastructure, for improving quality of administrative services. All this calls for running a budget with a deficit,??? the government said in a statement Tuesday.

The Yanukovych government submitted its 2007 budget to Parliament earlier this month, anticipating the budget gap to increase to UAH15.1 billion, or 2.55% of GDP, up from an originally planned 2%.

Other coalition parties, such as the Socialists, have been calling for an increase in the budget to at least 3% of GDP, but the government said it planned to keep the deficit at 2.55% for the next three years. The government plans to keep the total level of debt at 20% of GDP by 2010.

But the budget deficit plans have been harshly criticized by Viktor Pynzenyk, a former finance minister who had engineered the policy of debt reduction during the past 1.5 years.

???By discontinuing the policy of debt reduction, the new government plans to put a debt noose around the neck of Ukraine,??? Pynzenyk said.

Pynzenyk said that data suggest that the government will increase Ukraine??™s debt to at least UAH188 billion as of Jan. 2010, which would dramatically increase payments the country would have to make on interest payments.

???The budget spending on interest will grow to UAH15 billion annually,??? Pynzenyk said. ???Compare this with UAH10.3 billion to be spent on education and UAH4 billion on healthcare next year.??? (tl/ez)