KIEV, Oct. 8 – The possible approval of a major social spending increase by lawmakers may undermine Ukraine’s cooperation with the International Monetary Fund, a senior government official said Thursday.

Deputy Prime Minister Hryhoriy Nemyria, who met IMF deputy managing director John Lipski in Istanbul on Monday, said politically motivated bills may hamper the IMF lending.

“Officials [at the IMF] expressed condolences over the fact that Parliament’s work is unstable and politically motivated bills are approved, and that all may jeopardize the IMF lending program,” Nemyria said, according to Interfax-Ukraine.

The government hopes to win $3.1 billion next installment in November as Ukraine depends on the external borrowing for paying its foreign debts this year and next.

The installment, which is part of a $16.4 billion lending package approved in November 2008, is also instrumental in supporting the hryvnia, the local currency, which has lost more than 50% of its value over the past 12 months.

The office of President Viktor Yushchenko has earlier expressed doubts that the next IMF installment will be released, citing the government’s failure to fulfill five out of six key conditions.

But comments from Nemyria, the last government official who had a meeting with IMF management, suggests that the government has been increasingly concerned over the matter.

Nemyria told Lipski that Ukraine that it was “extremely important” for Ukraine to received the next installment, according to the government’s press service.

Parliament, led by the opposition Regions Party, on Tuesday voted to preliminary approve a bill that dramatically increases social payments and may potentially have a devastating effect on Ukraine’s finances.

The bill is a major setback for Prime Minister Yulia Tymoshenko, whose government has been struggling with making regular social payments as the economy has contracted 20% on the crisis.

The bill - if approved in the second reading and signed into law - would dramatically widen budget deficit, and would be just another reason for the IMF to postpone its lending to Ukraine, analysts said.

The bill is widely considered to be politically motivated aimed at making the life more difficult for Tymoshenko, one of leading candidates for the presidential election due January 17, 2010.

The government this year collects 20% less money then has been originally planned due to the economic contraction, but Tymoshenko has been able to survive politically mostly due to the bailout lending from the IMF. (nr/ez)