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Ukraine's Yanukovich gets close ally as PM

KIEV (Reuters) - Ukraine’s new prime minister, Mykola Azarov, declaring state coffers were empty, promised on Thursday to meet all obligations to the International Monetary Fund and push through a realistic 2010 budget.

Ukraine's former finance minister Mykola Azarov stands during the parliament session in Kiev March 11, 2010. REUTERS/Konstantin Chernichkin

President Viktor Yanukovich has moved swiftly to consolidate power since his election last month and end years of dysfunctional government and economic backsliding under the leaders of the 2004 Orange Revolution.

“The country has been plundered, the coffers are empty, state debt has risen threefold,” Azarov, a former finance minister and a close Yanukovich ally, told parliament shortly before deputies confirmed his appointment.

Battered by the economic downturn, Ukraine needs to adopt a budget and restart talks with the IMF on a suspended $16.4 billion bail-out package.

Azarov said he would invite the fund to visit the country as soon as possible and instructed new Finance Minister Fedir Yaroshenko to start work on a “realistic” version of the much-delayed budget.

The IMF will watch closely how Ukraine handles the budget after a series of spending blowouts, backed by Yanukovich’s Regions Party, derailed the lending package.

The fund held back a $3.5 billion tranche expected last November after parliament increased minimum wages and pensions by up to 10 percent. The more populist tone of the government could yet weigh on the budget and the IMF talks.

Azarov said he hoped the IMF would resume lending, but in comments suggesting he might seek softer terms, he added: “We hope that this program will be broadened and will be reviewed, taking into consideration realities in our country.”

He said Ukraine had to repay 44 billion hryvnias ($5.5 billion) in domestic debt by the end of the year, a challenge he described as very serious.

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Analysts welcomed the rapid formation of the government, but said concerns remained over its likely economic policy.

“I am still a little cautious on the results of the Ukrainian government’s talks with the IMF because without tough measures of control over budget spending...they will not be able to agree on a new program,” said Alexander Morozov, chief economist for Russia and CIS at HSBC in Moscow.

DIVIDED COUNTRY

Barclays Capital said in a research note that greater political stability could ease pressure on the hryvnia currency and thus reduce the drain on foreign exchange reserves.

Azarov is seen as a safe pair of hands but no radical reformer. He gives Yanukovich a reliable ruling partner afer the infighting that split the Orange Revolution alliance.

In a statement, the president said a coalition had been formed “which will take full responsibility for pulling the country out of political and socio-economic crisis.”

The coalition announced Thursday between the Regions Party, the Communists and the Litvyn bloc relies on the support of several deputies outside those factions for its 235-seat majority, and it remains to be seen how stable this will be.

“Yanukovich has managed to take control over the executive, but he needs to consolidate within since there are many conflicts of interests within the government,” said Volodymyr Fesenko, director of the PENTA think-tank.

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Russian-born Azarov replaces Yanukovich’s rival Yulia Tymoshenko, who was ousted in a vote of no-confidence last week after losing the presidential election.

Tymoshenko said the new government was “made up completely of Ukrainian oligarchs,” or powerful tycoons.

“I predict the first thing they will do is to divide amongst themselves the financial spoils ... and the strategic state assets for shady privatization,” she told a news conference.

Yanukovich will continue to face a divided country of 46 million people, split between a Russian-leaning south and east and a west and center inclined more to the west.

His victory tilted the former Soviet republic back toward Russia, source of the gas that runs through Ukraine to Europe. Ukraine’s ambassador to Moscow, Kostyantyn Gryshchenko, was made foreign minister.

Azarov signaled Ukraine would seek to renegotiate the price of gas supplies from Russia under an agreement struck by Tymoshenko in 2009 that scrapped preferential terms and brought rates in line with the market.

additional reporting by Toni Vorobyova; writing by Richard Balmforth and Matt Robinson; editing by Paul Taylor

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