KIEV, Oct. 27 – President Viktor Yushchenko has taken time out to decide whether to veto a controversial bill increasing social spending that the government believes may result in rocketing inflation, a top official said Tuesday.

Vira Ulianchenko, Yushchenko’s chief of staff, said decision on the bill, which the International Monetary Fund said must be vetoed for the country to qualify for a $3.4 billion loan installment, was “not easy.”

“The consultations are underway, experts are working on it, examine the bill and how much it is going to cost the state,” Ulianchenko said in an interview with Channel 5. “This is not an easy bill. The president is working on it, and thank God we still have time.”

The bill was approved on October 20 by Parliament, led by the opposition Regions Party, and the president has two weeks to sign or to veto the legislation.

The bill calls for an immediate and dramatic increase in social spending and wages that the government estimates may cost extra 8.1 billion hryvnias in 2009 and extra 71.3 billion hryvnias in 2010.

Discussions over the bill have been increasingly shifting from an economic prospective towards political one and come less than three months before the next presidential election on January 17, 2010.

Prime Minister Yulia Tymoshenko, who built her popularity through a number of populist initiatives over the past two years – such as the promise to repay 120 billion hryvnias in frozen Soviet-era bank deposits to people and refusal to hike household natural gas prices to sustainable levels - has now criticized the bill.

Tymoshenko wrote a letter to Yushchenko on October 22 asking to veto the bill amid concerns that it would “unbalance budgets in 2009 and 2010, widen budget deficits, will cause unpredictable pace of inflation and will impoverish the people of Ukraine.”

Tymoshenko said that to meet the increase in spending as required by the bill the government would have to lay off 1.6 million people, or 45% of all workforce paid by the state budget.

In addition, the country’s businesses would have to come up with extra 87 billion hryvnias next year to meet the bill’s demand for increasing wages throughout the sectors, according to Tymoshenko.

But perhaps the most important impact would be the refusal by the IMF to disburse the next installment of $3.4 billion to Ukraine, which bears the risk of destabilizing the hryvnia, the country’s local currency, analysts said.

Yushchenko has been frequently clashing with Tymoshenko over economic policy over the past two years. He recently criticized the government for the failure to implement economic reforms and instead its reliance on heavy borrowing.

Ukraine’s total state debt has increased to 205.4 billion hryvnias as of the end of August, up from 130.7 billion hryvnias as of the end of December 2008 and 71.3 billion hryvnias as of the end of December 2007, according to the presidential office.

Tymoshenko became the prime minister in December 2007.

Ulianchenko said Yushchenko has been examining the bill to see whether it was possible to finance it, and added that Tymoshenko had promised – by failed – to increase the living standards.

“The premier said in early 2009 that she will not allow reduction of social standards,” Ulianchenko said. “But as we know the wages have dropped by 13%. So, what should we do in this situation?” (tl/ez)