KIEV, Oct. 3 – The International Monetary Fund may postpone its next $3.1 billion installment to Ukraine unless the government hikes domestic natural gas prices and implements other reforms, a senior official at President Viktor Yushchenko’s office said.

Ukraine depends on the IMF’s $16.4 billion loan to pay foreign debts and to support the hryvnia, which has already lost half of its value against the US dollar since the crisis began in November 2008.

“We are not going to get the financing until commitments that Ukraine has undertaken are implemented,” Oleksandr Shlapak, a deputy chief of staff at the Yushchenko office, said at a press conference Friday. “The IMF is quite categorical in this sense.”

But Prime Minister Yulia Tymoshenko indicated on Saturday that the government will not be hiking domestic gas prices through the end of the year, suggesting the government will probably defy the IMF demands.

“If they tell you from television screens that the gas price will increase then [remember] I’ve promised you that the price will not increase through the end of the year,” Tymoshenko said during her trip to Ivano-Frankivsk region.

Tymoshenko’s refusal to hike domestic gas prices suggests that she has been seeking to increase her popularity ahead of the next presidential election due on January 17, 2010.

But the refusal to implement the reforms may force the IMF to postpone the loan, a development that may eventually undermine financial stability in the country.

The government depends on external borrowing to be able to pay foreign debts this year and next as Ukraine goes through the sharpest economic crisis since the collapse of the former Soviet Union in 1991.

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said recently that Ukraine must press ahead with reforms as loans alone will not help the economy out of the crisis.

"Loans can be useful to solve problems immediately, but the root of the problems lies within the country," Strauss-Kahn said at a forum in the Ukrainian resort town of Yalta via a video link on September 27.

Yushchenko has last month taken the government to task for failure to implement five out of six IMF demands, including the hiking of domestic natural gas prices.

An IMF team is expected to arrive in Ukraine in October to check whether the government has adhered to the agreed reforms. The team was in Ukraine earlier this month, but little progress has been made over disbursement of the next installment.

The government hopes to receive $3.1 billion installment from the IMF before the end of the year in order to be able to meet the country’s foreign debt obligations.

The fund approved a $16.4 billion two-year standby loan in November 2008 to support Ukraine’s shrinking economy that had been affected by the global financial crisis.

Tymoshenko, in order to receive a $3.3 billion installment from the IMF in early August, had promised to hike domestic gas prices by 20% on Sept. 1. The price hikes were seen as crucial for the health of the country’s energy sector.

But three weeks later – after the government already spent the money received from the IMF, mostly on foreign debts and gas supplies – Tymoshenko suddenly reversed herself and said there would be no price hikes. (tl/ez)