KIEV, Feb. 8 – Prime Minister Yulia Tymoshenko has sent a team of negotiators to Russia seeking to borrow $5 billion to cover Ukraine’s growing 2009 budget deficit, a newspaper reported Saturday, citing a source in the team.

The loan, the largest amount of money ever borrowed by Ukraine from another government, is conditioned to a number of sensitive issues, including the settlement of Soviet Union’s assets and liabilities, Dzerkalo Tyzhnia reported.

Tymoshenko’s press service on Saturday denied the fact of the talks.

But hours later, speaking at the sidelines of an international security conference in Munich, Tymoshenko admitted the talks had been underway and said Russia had preliminarily agreed to lend the money.

Finance Minister Viktor Pynzenyk and some other senior members of the government are apparently not aware of the talks, according to the newspaper.

The talks with Russia come amid growing speculation that the International Monetary Fund may suspend its $16.4 billion emergency loan to Ukraine as the government had failed to comply with the loan conditions.

The IMF is apparently concerned that the government has been running a widening budget deficit due to falling budget revenue in January.

Tymoshenko responded the budget revenue was on target and has refused to consider cutting any budget spending through the end of June.

But speaking in Munich, Tymoshenko said her government had sent letters to Russia, the U.S., Japan, China, the European Union and some other undisclosed countries seeking to borrow cash to finance the deficit.

“We have already received positive replies to these letters from some countries, including from Russia,” Tymoshenko said.

The office of President Viktor Yushchenko on Saturday quickly attacked Tymoshenko for holding the “secret” talks and for “unwilling to tell the Ukrainian people the truth about the real state of the economy.”

The Yushcenko office estimated the government may be facing a budget deficit at 70 billion hryvnias in 2009.

The government earlier predicted budget revenue would increase by 3.1% to 238.9 billion hryvnias in 2009, while spending was set to increase 10.7% to 267.3 billion hryvnias, according the Finance Ministry.

The State Treasury raised 4.23 billion hryvnias in January to the general fund, which represents the biggest chunk of the budget, compared with 9.52 billion hryvnias originally forecast, exposing a major budget deficit.

But statistics released by Tymoshenko’s press service showed the government had collected the forecast budget revenue in January, suggesting much of the revenue had arrived on the last day of January.

Tymosheko denied that the money to be borrowed from Russia will be conditioned to any sensitive issues, such as the settlement of former Soviet Union’s debts.

“This is not truth,” she said. “These are the allegations that are not aimed at political and economic stability, but are destructive.”

But a photocopy of the government’s instructions for the talks - obtained and published by Ukrayinska Pravda online newspaper on Saturday - shows the settlement of Soviet Union’s debts is one of the issues to be considered.

Russia has been over the past 18 years pushing for Ukraine to accept the ‘zero option’ in the settlement of Soviet Union’s assets and liabilities.

Ukraine, however, has been insisting on accepting about 16% of all USSR’s assets and liabilities that are estimated at more than $100 billion each. (nr/ez)