KIEV, April 18 – President Viktor Yanukovych’s government is delaying important economic reforms and seeking to rely on borrowing to meet a huge budget deficit this year, Viktor Pynzenyk, a former finance minister, said Sunday.

Pynzenyk, who saw the draft 2010 budget, said the government may face a hidden budget deficit of 150 billion hryvnias in 2010, up from 100 billion hryvnias in 2009.

“The situation is worsening,” Pynzenyk said in an interview with TVi on Sunday. “This is a dead end.”

Pynzenyk quit the government of then-Prime Minister Yulia Tymoshenko in February 2009 in disagreement with her policy of widening the budget deficit.

But Pynzenyk said the government led by Prime Minister Mykola Azarov is making the same mistake by seeking to borrow more and refusing to cut spending.

The comment comes days after Iryna Akimova, the top economic aide to Yanukovych, said that Ukraine plans to continue to rely on borrowing from the International Monetary Fund through the end of 2012.

The government seeks the IMF to resume its $16.4 billion loan to Ukraine, which was suspended in November 2008 due to the failure to approve the 2010 budget.

The government seeks to receive at least $5 billion from the IMF immediately to bridge the budget deficit this year.

IMF Managing Director Dominique Strauss-Kahn, at a meeting with Yanukovych in Washington last week, said the lending may be resumed after the government approves 2010 budget with sound budget deficit.

Pynzenyk said the budget deficit problem was so bad that simply increasing borrowing will not solve it, and attempts should be made to cut spending.

“You can’t find the answer to the problem in the area of revenue,” Pynzenyk said. “I don’t see actions aimed at cutting spending.”

“This creates a dangerous situation when debt is producing [more] debt, and the servicing of the debt requires very large funds,” he said.

He said in 2010 Ukraine will have to spend on servicing the debt the amount that is twice as big as the country spends on defense.

Pynzenyk said the government’s efforts to lower the price of Russian natural gas this year will not save the situation.

Ukraine is in talks with Russia since March 5 seeking to lower natural gas prices, to about $200 per 1,000 cubic meters, down from about $330/1,000 cu m.

“This doesn’t eliminate the budget deficit,” Pynzenyk said. “Last year there was an average price of gas at $230/1,000 cu m. Let’s assume there will be the same price this year: the problem doesn’t go anywhere.”

Pynzenyk called on the government to launch economic reforms, and said little had been done so far.

“On the one hand, little time passed, but the situation is such that it requires decisions,” Pynzenyk said. “I don’t see those decisions so far.”

Two weeks ago Pynzenyk praised the government’s decision to eliminate about 45 billion hryvnias in state guarantees on loans to be taken by private companies.

The practice fuels corruption as a well-connected private company borrows the money and than defaults on the loan, forcing the government to pay it back.

“This is the way of pocketing money,” Pynzenyk said, adding that when he recently checked the draft 2010 budget, he saw the same 45 billion hryvnias in guarantees.


“The only difference is that obviously the guarantees will be issued to other [well-connected companies],” Pynzenyk said. (tl/ez)