By Natalia Zinets and Jack Stubbs
KIEV Feb 5 The confrontation between opposition-led protesters and the government of President Viktor Yanukovich, and a refusal to agree a compromise, is weighing on the Ukrainian economy, acting prime minister Serhiy Arbuzov said on Wednesday.
"Political instability is putting pressure on the currency market. There is tension despite a lack of economic reasons for this," he told a meeting of the interim cabinet.
"Every day of confrontation and a lack of desire to find a compromise weakens our country economically," said Arbuzov, who was appointed after the resignation of Prime Minister Mykola Azarov last week as Yanukovich tried to appease protesters.
Weeks of standoff with the opposition show no sign of easing. But, Arbuzov said: "There are no fundamental economic reasons for concern."
He noted the balance of payments for 2013, published on Tuesday, showed a surplus of $2.021 billion compared to a 2012 deficit of $4.175 billion.
However, the overall current account deficit grew last year by 13 percent to $16.141 billion. The data showed the balance of payments recorded a $3.288 billion surplus in December, the month when Russia bought $3 billion of two-year Eurobonds from Ukraine as the first tranche of a financial support package.
Ukraine's central bank intervened in the currency market for a second day on Wednesday, offering to sell dollars at auction for 8.7000 hryvnias against 8.6000 hryvnias on Tuesday. The hryvnia was quoted on the commercial market at 8.75-8.80 per dollar, little changed on Tuesday's close of 8.75.
Tuesday's intervention was the first since last Thursday.
The bank has been trying to stem strong demand for dollars prompted by the unrest, which has seen demonstrators take over the centre of Kiev and public buildings in other cities since November. The protests were prompted by Yanukovich's rejection of a trade deal with the European Union and decision to accept the financial aid from Russia instead.
The hryvnia has lost more than 6 percent so far this year.
Analysts link the currency's recent slide to uncertainty over the $15-billion Russian aid package which saved the country from default in December. Moscow has suspended a second tranche of aid until it is clear who will take over as premier from Azarov, who favoured ties with Russia. [ID: nL5N0L51FV]
Speculation that Western powers might provide alternative financial support have helped rally Ukraine's dollar bonds this week. EU and U.S. officials say they are looking at helping a new Ukrainian government.
EU foreign policy chief Catherine Ashton was meeting Yanukovich and opposition leaders on Wednesday in Kiev to discuss a peaceful solution to the country's political crisis.
Asked about when Yanukovich might name a prime minister, the parliamentary leader of his Party of the Regions told a news conference that the president had 60 days from the moment of Azarov's resignation to name a new premier.
"Today, consultations are going on and it seems to me that it's possible that the president will give his opinion next week," Oleksandr Yefremov told a news conference.
He was also asked about comments from a fellow lawmaker that Yanukovich was considering an early parliamentary election to try and break deadlock with the opposition.
"I don't the president has a great desire to plunge the country into elections," Yefremov said. "But if things go on as they are, when parliament is not working, then something will have to be done."
A recent opinion poll showed the Party of the Regions would be the biggest party in an election, with 20.7 percent of the vote.