KIEV, Feb. 17 – President Viktor Yushchenko said Tuesday the resignation of Finance Minister Viktor Pynzenyk will probably trigger a chain of negative events in the economy that will further undermine budget revenue this year.

Parliament on Tuesday accepted the resignation of Pynzenyk, but Prime Minister Yulia Tymoshenko lacks enough legislative support to approve a new finance minister.

“Losing such a voice is a misunderstanding and [underscores] unprofessional policy of the government,” Yushchenko said at a press conference in Netishin. “I’m convinced this will be followed by the chain of negative processes in the Ukrainian budget sector.”

Ukraine’s budget revenue fell more than 50% in January, exposing a major widening of budget deficit this year, as many Ukrainian companies, such as steel companies, suspended production due to falling demand overseas.

Pynzenyk has been calling for immediate cuts in budget spending to reduce the deficit, but this had been rejected by Tymoshenko, who believes the economy would expand 0.4% on the year in 2009. Independent economists see the economy contracting 10% this year.

The International Monetary Fund, which is also concerned about the government’s refusal to cut the spending, signaled it may suspend its $16.4 billion loan it had approved for Ukraine last year.

“The absence of a professional figure at the post of the finance minister would lead to chaos and, respectively, the country may be heading towards default,” Ksenia Liapina, a lawmaker from Our Ukraine-People’s Self-defense group, said.

Andriy Kozhemiakin, a leader of the Tymoshenko group in Parliament, said the coalition will try to approve the new finance minister on Thursday.

Meanwhile, some bank analysts predict that Ukraine may be heading for a historic default on its national debt, in a scenario that could complicate EU-Ukraine relations.

"The market is pricing in a probability of sovereign default of almost 90%," Commerzbank analyst Ulrich Leuchtmann told EUobserver on Monday. "It could happen in the next couple of quarters."

Ukrainian industrial production plunged 34.1% on the year in January, while the hryvnia had lost almost a half of its value over the past six months.

Tymoshenko recently denied any possibility for Ukraine to default on its foreign debts.

Yushchenko has said the default will be avoided if the government cuts its budget deficit dramatically and implements other austerity measures.

If Ukraine defaults, Austrian, French, Swedish, Italian and German banks stand to be the worst losers, with collective exposure of around $40 billion in the country, according to the Bank of International Settlements.

The biggest national default in history, Argentina, in 2001 plunged ordinary Argentines into deep poverty for several years and saw international creditors snatching up Argentine state-owned assets abroad.

A more likely model for Ukraine would be Russia's financial crisis of 1998, which saw Russia write off billions in foreign debt. The Russian economy bounced back by 2000, however, as investors returned because of the country's long term growth prospects. (tl/ez)