WRAPUP 1-Ukraine without finmin as industrial output dives

KIEV, Feb 17 (Reuters) - Ukraine’s parliament accepted the resignation of the veteran finance minister on Tuesday as data showed industrial output suffered the worst drop in January in its history, pointing to a deep recession this year.

The resignation of Viktor Pynzenyk last week compounded the ex-Soviet state’s woes. With recession looming, Ukraine failed to secure the second tranche from a $16.4 billion IMF loan, prompting rating agencies to cut or threaten to cut ratings.

Pynzenyk infuriated Prime Minister Yulia Tymoshenko by criticising the budget, which he said was based on overly optimistic forecasts and includes a deficit. Political turmoil means finding a replacement for him may take some time.

The economy has been hit hard by falling global demand and declining prices for steel and chemicals -- key exports for Ukraine -- a squeeze on lending that has paralysed business and a weakened currency that has destabilised the banking system.

Data showed output fell 34.1 percent year-on-year in January and 16.1 percent month-on-month. The slump, albeit hastened by Russia’s three-week gas supply cut-off during a pricing row, has prompted forecasts of a dramatic economic decline in January.

“This is a historic fall not only since Ukraine’s independence but for the previous Ukraine too,” said Valery Lytvytsky, the central bank’s top adviser. “....January’s GDP figures are most likely to be negative. Calculating them accordingly, about -20 percent, by my estimates,” he said.

Ukraine’s steel output fell 50 percent in January compared to a year ago. Chemical and petrochemical production shrank just under 50 percent. Much of that industry ground to a halt last month during the gas dispute. Machine building and mineral production both contracted by over half year-on-year.


Tens of thousands of workers have been put on unpaid leave. Many of those had taken out dollar-denominated loans to pay for cars and homes and seen their repayments shoot up as the hryvnia currency lost half of its value at the end of last year.

That and deposit withdrawals has shaken the banking sector. Seven banks were put in receivership. Prominvestbank, the 11th largest, has since been bought by Russia’s state-controlled VEB Bank.

The European Bank for Reconstruction and Development said on Monday it was willing to invest 500 million euros to support individual banks in the country.

The International Monetary Fund agreed to lend to Ukraine in November, but under certain conditions, and said some of the cash should go towards supporting banks.

But a mission left last week without disbursing a second tranche. The uncertainty over if and when the next tranche could be given out led to a ratings downgrade from Fitch and a threat to downgrade from Standard & Poor’s.

A key condition for the loan was a balanced budget, for which Pynzenyk had fought and lost.

The budget plan has a 3 percent deficit and is based on the assumption that the economy will grow 0.4 percent this year. Analysts believe it will shrink instead by up to 6 percent from 2.1 percent growth in 2008 and 7.6 percent growth in 2007.

Tymoshenko now needs to propose a new finance minister to be approved by parliament. But finding one who would suit both her and the shaky ruling coalition in parliament will be tricky.

The coalition includes supporters of both Tymoshenko and President Viktor Yushchenko, who have been embroiled in a power struggle for over a year.

Commentators have long suggested two experienced figures could take over once Pynzenyk went - former central bank head and minister Serhiy Tyhypko and Petro Poroshenko, head of the central bank’s policy-making council.

But Tymoshenko may want to find a more compliant candidate, such as Vitaly Gaiduk, who currently heads a group of her advisers.

The head of Tymoshenko’s bloc in parliament, Ivan Kyrylenko, told journalists parliament could vote on new ministers, including a finance minister, as early as on Thursday. But no names have been put forward as yet. (Additional reporting by Natalya Zinets and Yuri Kulikov; editing by Stephen Nisbet)