Last updated: December 3, 2012 12:17 pm

Ukrainian government resigns

Ukraine’s president today accepted the resignation of his prime minister, setting the stage for a new government to renew negotiations on a multi-billion-dollar loan programme with the International Monetary Fund amid signs that the economy is sliding into recession.

Appointed premier in 2010 soon after Viktor Yanukovich was elected president, Mykola Azarov is to continue heading government until parliament approves a new premier and cabinet in coming days.

“It’s still not clear who will be the next prime minister,” said Kost Bondarenko, a political analyst who has advised Mr Yanukovich’s administration. “But there are candidates on the table that could more swiftly re-engage with the IMF.

Some local politicians and pundits predict Mr Yanukovich will in coming days propose for Mr Azarov to return as premier, betting that parliament will approve the candidacy and give his long-time ally a fresh mandate.

Among candidates, Mr Bondarenko pointed to outgoing deputy premiers Valery Khoroshkovsky and Sergiy Tigipko, deputy presidential administration chief Iryna Akimova and central bank head Sergiy Arbuzov.

“Formation of a new government is likely to be a matter of days,” said Dragon Capital, a Kiev-based investment bank, adding that the central bank governor Sergiy Arbuzov was widely tipped as a likely new PM.

A previous $15bn IMF loan was frozen in 2011 amid lacklustre reform efforts. Last week, Mr Azarov’s government formally asked the IMF to renew talks on a new programme. An IMF mission is scheduled to visit Kiev between December 7-17.

Mr Azarov has staunchly opposed elimination of costly subsidies on household natural gas prices, a key IMF loan condition. “His departure should therefore be positive for the upcoming talks with the Fund and makes a successful outcome more likely,” Dragon Capital added.

Turning 65 this month, Mr Azarov opted to serve in parliament in coming years rather than stay on as premier. He was elected to parliament on the ruling Party of Region’s party ticket in an October 28 election that was criticised by an OSCE-led observer mission as a step back from democratic progress made in prior years.

Mr Azarov’s government inherited an economy that was crawling out of a deep 2009 recession during which gross domestic product plunged by 15 per cent. Kiev posted moderate growth in 2010-2011. But the rebound ended this year amid waning demand for some of its biggest exports, foremost steel, and a domestic credit crunch.

Alexander Valchyshen, head of research at Kiev-based Investment Capital Ukraine has said that the country “desperately” needs fresh loans from the IMF as it must roll over about $10bn in external sovereign debt next year, including $5.9bn it owes to the IMF.

Yulia Tymoshenko, opposition leader and previous premier, was jailed under Mr Azarov’s premiership. Compounded with broader concerns about a roll-back in democracy under Mr Yanukovich rule, this soured relations with the EU and US.

Mr Azarov’s government also failed to convince Russia to reduce prices on natural gas imports that Ukraine’s economy depends so heavily upon as a fuel.

“A new government and a new PM will facilitate the process of negotiations with the IMF and pave the way for speedier re-engagement,” investment bank Renaissance Capital said.

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