KIEV, Oct. 28 – President Viktor Yushchenko indicated Wednesday he will sign a controversial bill that dramatically increases social spending less than three months before the next presidential election.

The move, seen as politically motivated, will most likely force the International Monetary Fund to postpone its $3.4 billion Standby loan installment to Ukraine, scheduled for this year, reducing chances for Prime Minister Yulia Tymoshenko to win the presidency.

The bill, which was approved Oct. 20 by lawmakers led by the opposition Regions Party, underscores Tymoshenko’s failure to control a majority in Parliament, a charge she has repeatedly denied.

“These [social] standards have been raised, obviously due to the political situation,” Yushchenko said in comments while visiting the TransCarpathia region. “But excuse me, the standards have been raised by whom? By a political group that is not a member of the [pro-government] majority. And Parliament approves this bill. So, I agree with Parliament.”

Yushchenko said he will explain in detail his decision to sign the bill on Thursday.

Tymoshenko sent a letter to Yushchenko on Oct. 22 asking him to veto the bill, which may widen the budget deficit to an unsustainable level and trigger hyperinflation.

The government believes it will need extra 8.1 billion hryvnias in 2009 and extra 71.3 billion hryvnias in 2010 to comply with the bill, which sets immediate increase in pensions and minimum wages.

The government also estimated it would have to lay off 1.6 million people, or 45% of workforce that is on the payroll of the state budget in order to make funds available for the social payments increases.

But perhaps the most important impact would come from the IMF likely postponing its $3.4 billion next installment. The IMF said earlier this week the president must veto the bill for the installment to materialize in November.

The government relies heavily on the IMF funding in order to survive the economic crisis, suggesting that the postponed installment would put mounting pressure on Tymoshenko for keeping its spending schedule.

The failure to comply with the spending schedule and possible wage and pension arrears would hurt Tymoshenko politically, reducing her chances of winning the presidency.

Ukraine received $10.6 billion from the IMF over the past 12 months, but the money was spent on natural gas imports and other urgent needs, while the government has failed to implement important reforms.

For example, Tymoshenko – citing her election promise - refused to hike natural gas prices for households that has put national energy company Naftogaz Ukrayiny on verge of bankruptcy. The government also did little to stabilize and to refinance the banking sector, which is facing significant liquidity problems.

Instead, the government has been relying on borrowing to be able to keep up with unsustainable budget spending.

Ukraine’s total state debt has increased to 205.4 billion hryvnias as of the end of August, up from 130.7 billion hryvnias as of the end of December 2008 and 71.3 billion hryvnias as of the end of December 2007, according to the presidential office. (tl/ez)