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Nation    

Government, Regions headed for showdown
Journal Staff Report

KIEV, Aug. 31 – The pro-government coalition is heading for a showdown with the largest opposition group in Parliament on Tuesday over the group’s demands to steeply increase minimum wages and pensions next year.

The opposition Regions Party on Monday demanded to more than double the minimum wage and to almost triple minimum pension in 2010, sharply increasing its earlier demands.

Coalition lawmakers argued the demands are impossible to meet without a sharp increase in budget deficit, which is already hovering at levels that threaten macroeconomic stability.

Although the coalition agreed to debate the bill on Tuesday, the showdown may eventually lead to a deadlock, effectively paralyzing legislature just when the government needs to approve the 2010 budget.

“My understanding is that if the bill fails to collect 226 votes [majority] I have huge doubts that the Regions Party would let us work,” Mykola Tomenko, a deputy speaker of Parliament and a member of Prime Minister Yulia Tymoshenko’s coalition, said.

The comment underscores fears within the government that Parliament will never be able to approve the 2010 budget as leading political figures and their parties launch campaigns for the next presidential election.

The approaching election, which is due on January 17, 2010, is forcing both, pro-government and opposition groups, to compete by suggesting populist bills, while the budget revenue is suffering from major economic contraction.

The International Monetary Fund, Ukraine’s biggest lender, warned recently that uncontrolled widening of the budget deficit may force the fund to suspend its $16.4 billion stand-by loan. Ukraine received $10.5 billion within the loan since November 2008.

Viktor Yanukovych, the leader of the Regions Party, said Monday his group demands the minimum monthly wage to increase to 1,500 hryvnias and the minimum monthly pension to 1,300 hryvnias in 2010.

This is a sharp increase from the current minimum monthly wage of 630 hryvnias that has been in effect since July 1, according to the 2009 budget.

The figures announced by Yanukovych far exceed demands from the Regions Party that have been announced only weeks ago: increasing the minimum monthly wage to 930 hryvnias on January 1, 2010 and to 1,000 hryvnia on December 1, 2010.

“Due to abrupt deterioration of the economic situation, the fall of the hryvnia’s value and the new price hikes, the Regions Party is increasing its demands to the government,” Yanukovych said.

The sharp increase in the minimum wage and pension may provoke a major widening of the budget deficit, analysts warned.

For example, the increase of the minimum monthly wage to 808 hryvnias, up from 630 hryvnias, would double the 2010 budget deficit to 8% of the GDP from 4%, the analysts said.

Valeriy Heyets, the head of the Institute for Economy and Forecast, a Kiev-based economic think tank, said demanding an increase in the minimum wage may eventually hurt the economy through accelerated inflation.

“We have to understand that this economic crisis must reestablish the balance between real resources and the living standard,” Heyets said. “Unfortunately, the living standard will have to drop. This is the tragedy of today.” (tl/ez)




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