KIEV, July 8 – Ukraine’s talks with the International Monetary Fund have stalled as President Viktor Yushchenko has been seeking to force the government to agree to extra reforms, Prime Minister Yulia Tymoshenko said Wednesday.

Yushchenko and Tymoshenko are political rivals and will probably clash at the next presidential election in January 2010. The president repeatedly blamed the government for delayed economic and energy sector reforms.

But the political rivalry between the two may impede Ukraine’s cooperation with the IMF just as the government had planned to secure at least $7 billion in lending through the end of the year.

“Unfortunately the president is adding new and new commitments that he wants Ukraine to accept,” Tymoshenko said at a press conference. “That’s why the talks have stalled.”

The government on Wednesday approved a special letter of intent that must be approved by the IMF for the successful resumption of lending.

The letter must be signed by the prime minister, the finance minister and the governor of the National Bank of Ukraine, and by the president of Ukraine.

Yushchenko and Tymoshenko repeatedly clashed over the government’s economic policy, and the prime minister has been mostly ignoring the criticism from the presidential office.

By insisting to include the reforms in the letter, Yushchenko has been apparently seeking to force the government implement what he sees as crucial reforms under program that will bear the stamp of the IMF, analysts said.

Ukraine relies on $16.4 billion two-year loan from the IMF to avoid default on foreign debts this year and next, analysts said.

Ukraine also needs loans to support the national currency, the hryvnia, as hard currency revenue has dwindled, reflecting collapse in demand for steel, Ukraine’s main exports.

Tymoshenko hopes that the IMF would disburse at least $3.2 billion loan before the end of July and about $3.8 billion in October or November to support the country’s financial system.

“It’s very hard to agree to compromises, but [the cooperation with the IMF] helps to secure hard currency resources in Ukraine’s financial system that would allow maintaining the hryvnia stable,” Tymoshenko said. “This is the goal of cooperation with the IMF.”

Meanwhile, the National Bank of Ukraine, following its talks with the IMF team, said there were “grounds” for the IMF to disburse the money to Ukraine.

"There are grounds to expect positive results… The wishes [of Ukraine and the IMF] are almost symmetrical," Valeriy Lytvytsky, the head of NBU advisor team, said.

He said the IMF is demonstrating understanding of the situation in the country and the tasks the government has in its in-tray.

"I think that the government could reasonably prove the need for the unconventional use of the IMF's next tranche [aimed at supporting Ukraine's national budget]," he said.

Ukraine’s economy contacted 20.3% on the year in the first quarter, according to a report by the government late June.

The IMF forecast that Ukraine’s economy would shrink by 8% on the year in 2009, but has been considering worsening the forecast perhaps to 12%, IMF officials said. (tl/ez)