KIEV, June 26 – Prime Minister Yulia Tymoshenko, citing the lack of funds in the budget, on Thursday suspended her controversial depositor bailout plan, which had massively contributed to the record high inflation in Ukraine.

In a statement, Tymoshenko said the government will resume making the payments only after lawmakers approve a program that would unlock privatization revenue this year.

“We will do everything to meet our obligations concerning the redemption of the deposits,” Tymoshenko said in the statement.

The government had so far been denying the lack of funds in the budget. A finance ministry official, citing robust revenue from import duties and taxes, even said recently that overall revenue has so far been exceeding expectations.

But the move to suspend the redemption of failed Soviet-era bank deposits for millions of people shows the government has been facing major problems after failing to sell 9 billion hryvnias in state assets this year.

The move is a setback for Tymoshenko, who is thought to have designed and pushed hard for the plan to boost popularity ahead of the presidential election due late 2009.

The plan, the symbol of Tymoshenko’s populist promises, is blamed for boosting Ukraine’s inflation to 31.1% between May and May 2007, one of the worst such indicators in the world.

The plan was severely criticized by President Viktor Yushchenko, who used his power to block Tymoshenko’s attempts to sell 9 billion hryvnias worth of state assets this year to raise cash for the depositor bailout.

The bailout plan called to redeem 20 billion hryvnias in 2008, including 6 billion hryvnias in cash and 14 billion hryvnias through offsetting utility debts, and perhaps as much as 100 billion hryvnias in 2009.

After failing to raise privatization revenue, Tymoshenko has been considering borrowing at least $1.5 billion from the issue of Eurobonds later this year.

But the borrowing plan faced hurdles after Standards & Poor’s had recently lowered Ukraine’s credit rating, making it harder for the government to borrow cash at acceptable interest rates. The agency cited high inflation in Ukraine as the reason for lowering rating.

The move to suspend the payments may backfire at Tymoshenko by perhaps lowering her public support, analysts said.

These fears prompted Oleksandr Turchynov, the first deputy prime minister and Tymoshenko’s closest ally, to declare late Thursday that the government will meet its obligations even without the revenue from privatization.

In an interview with First National, the state television, he said the government may tap robust revenue from import duties and taxes to resume the depositor payments.

“We will take the planned indicator to 100% by the end of the year,” Turchynov said. (tl/ez)