KIEV Ukrainian President Viktor Yanukovich accepted the resignation of Prime Minister Mykola Azarov's government on Monday, without indicating whether he would re-appoint the long-time ally ahead of tough IMF loan talks.
The move had been expected after several cabinet members including Azarov were elected to parliament on October 28, something which obliges them to give up their ministerial roles.
Yanukovich told Azarov's government to stay on in an interim capacity, according to a decree published on the presidential website, and some commentators said he may keep the same team.
The 64-year-old Azarov has spent two and a half years trying to revive the debt-ridden economy, but economic growth rates have slowed this year as demand has shrunk for Ukraine's main exports such as steel.
The pragmatic, dour Azarov has resisted IMF pressure to carry out reforms such as raising the price of gas for households, an unpopular move that would have rebounded on the ruling Party of the Regions in the October election.
Yet he is seen by some as a safe pair of hands and many commentators believe Yanukovich, who brought him in as prime minister when he himself was elected in February 2010, might not want to take a chance to appoint a new face just now.
"Yanukovich will not take risks and complicate things at a time when the world economy is in crisis," said political analyst Taras Berezovets.
Yanukovich's Regions party fell short of its own expectations in the October vote, but still looks likely to be able to pull together a majority in the next parliament, which convenes for its first session on December 12.
Central bank chief Serhiy Arbuzov, with whom Yanukovich is personally close, has been mooted for some time as a possible successor to Azarov.
SAFE PAIR OF HANDS
Azarov had indicated previously that he wanted to stay. However, in a statement on Monday, he said he had held his "last government meeting as prime minister". His spokesman said those comments did not mean he was definitely leaving.
"Conclusions (that Azarov is not coming back for sure) are incorrect," Azarov's spokesman Vitaly Lukyanenko told Reuters.
As acting prime minister, Azarov is still expected to lead talks on a fresh lending agreement with an International Monetary Fund mission due to arrive in Kiev on December 7.
Whether or not he will keep his post thereafter will only become certain when the new parliament meets on December 12. Any cabinet nominations by Yanukovich are widely expected to be endorsed by parliament, given that the Regions believe they are close to nailing down a majority.
If Arbuzov, who unlike Azarov has made no populist pledges ahead of the October election - such as promising not to raise gas prices - took over the talks with the IMF, it might be an early indication of a planned reshuffle.
"We believe that the formation of the new cabinet (if led by Arbuzov) may accelerate negotiations and ease the agreement with the IMF," BNP Paribas analyst Julia Tsepliaeva said.
Ukraine says it hopes to use fresh IMF loans to repay $6.4 billion of its debt to the Fund falling due next year. The IMF, in turn, insists that Kiev needs to raise gas and heating prices for households to cut the growing budget deficit.
In addition to the IMF talks, Azarov has been at the forefront of tough - and so far unsuccessful - negotiations with Russia, Ukraine's main energy provider, to try to bring down the cost of imported natural gas, which the government says is way above market prices and a huge drain on the economy.
(Additional reporting by Natalia Zinets; Writing by Olzhas Auyezov and Richard Balmforth)