KIEV, Feb. 9 – President Viktor Yushchenko said Monday that Prime Minister Yulia Tymoshenko’s attempts to borrow $5 billion loan from Russia represent a “defective” and “faceless” government policy that may cripple the economy.

Yushchenko suggested that Russia may use the loan to undermine Ukraine’s economy by imposing special political conditions. He also pledged to refuse giving his approval for the talks, which can make signing the final agreement difficult.

“These consultations - as they cautiously call them - for the receiving of the $5 billion loan from Russia are a continuation of defective and faceless policy of the Ukrainian government,” Yushchenko said at a press conference in Ivano Frankivsk. “This is the loan that destroys the economic process and the process of budget revenue generation.”

Yushchenko has been long criticizing Tymoshenko’s economic policy for lack of reforms and social populism, but said that borrowing so much money from Russia may also hurt Ukraine’s national security.

“Such borrowing in one volley requires the [loan] servicing in one volley,” Yushchenko said, suggesting that Russia may be seeking to get access to management of Ukrainian gas transportation system and other strategic issues.

Tymoshenko said over the weekend that Russia has preliminary agreed to hold discussions over the possibility of lending the money, but ruled out any political concessions in the process.

Tymoshenko also said her government has been seeking to borrow money from Russia, the U.S., Japan, China, the European Union and some other undisclosed countries, while only Russia has responded to the request.

The talks come amid speculations that the International Monetary Fund may suspend its $16.4 billion emergency loan that it had approved for Ukraine in November amid concerns that the government has been refusing to admit it was running an increasing budget deficit.

Ukraine received the first payment of $4.5 billion from the IMF in November, but has been hoping to get the second installment later this year.

Yushchenko’s office estimated that the government may run budget deficit at more than 7% of the gross domestic product in 2009, or at 79 billion hryvnias, as opposed to original forecast of 3.1% deficit.

Andriy Portnov, a lawmaker loyal to Tymoshenko, said Monday that the money borrowed from Russia will be used to build bridges, roads and other infrastructure projects.

“These are things that are not linked to social spending and are not supposed to increase inflation,” Portnov said in a television talk show Shuster Live.

“Nobody has taken any loan yet. Nobody has put gas transportation system or any other Ukrainian assets as collateral,” he said. “Today only consultations are being held and Premier Tymoshenko has never yet used such instrument.” (nr/ez)