KIEV, Oct. 6 ??“ President Viktor Yushchenko on Friday threatened to veto the 2007 budget unless the government improves budget transparency, increases spending on defense and stops controversial programs that favor particular enterprises.

The warning on the budget comes amid rising tensions between Yushchenko and Prime Minister Viktor Yanukovych, who has been persistently seeking to reduce the president??™s influence on domestic and foreign policies.

Yushchenko??™s threat to use his constitutional power of veto is an indication that Yanukovych??™s foreign and domestic policies were increasingly at odds with Yushchenko??™s calls for faster economic reforms.

???It is not enough to simply declare the right policies,??? Yushchenko said in a statement.

The government submitted the draft 2007 budget to Parliament last month. The draft must be approved by lawmakers in three readings before the end of the year as Ukraine??™s calendar year coincides with its fiscal year.

The Yanukovych government has suggested increasing budget deficit to 2.55% of the GDP, up from 2% that had been earlier planned by the previous government of Prime Minister Yuriy Yekhanurov.

The Yanukovych??™s pro-Russian government challenged Yushchenko??™s pro-Western policy earlier last month by refusing to go ahead with Ukraine??™s accession to NATO. It dealt a further blow to the NATO policy by cutting spending on defense, a move that Yushchenko believes threatens national security.

Yushchenko also criticized the budget draft for lack of comprehensive tax reform, but noted that the government has been favoring a number of businesses by offering them better tax rates.

Some spending, Yushchenko said, was not transparent and that had been opening a possibility for abuse by central and local government officials thus potentially fueling corruption.

The budget must not become ???the arena for political lobbyists, splash of corruption and further increase in dependence of local authorities on the central government,??? Yushchenko said.

The government argued that higher budget deficit was needed to accelerate Ukraine??™s economic growth, and added the increase budget deficit will be financed through international and domestic borrowing.

Ukraine??™s economy expanded 5.5% on the year in January through July, up from 5% on the year, in the first six months, according to the State Statistics Committee.
The growth was mostly fueled by robust steel exports and emerging domestic demand, analysts said. The government forecasts growth at 6% in 2006. (tl/ez)