By Yuri Kulikov
KIEV, Oct 20 (Reuters) - Ukrainian Prime Minister Yulia Tymoshenko on Tuesday promised a visiting IMF mission to improve the country's finances, but President Viktor Yushchenko sounded a skeptical note - a reflection of rows between the two rivals.
The mission from the International Monetary Fund arrived last week to assess Ukraine's progress in fulfilling conditions set under the $16.4 billion bailout and decide whether to release a tranche worth $3.8 billion (S$5.29 million) by the end of the year.
The quarterly IMF reviews have been difficult - the fund delayed a second tranche for months earlier this year, but it has also shown flexibility as the crisis deepened.
The government has failed to make good on promises ahead of a presidential election on Jan. 17 in which Tymoshenko, Yushchenko and ex-premier Viktor Yanukovich are expected to run. "The situation in the finance sector is not easy, but there is political will amongst the government to stabilise it despite political factors and the start of the presidential campaign," Tymoshenko said in a statement after meeting the mission.
With support at just 3-4 percent, Yushchenko is not expected to be re-elected, while a harsh campaign will be waged between Tymoshenko and Yanukovich who are seen fighting head-to-head in the final round of voting in early February.
Yushchenko and Tymoshenko have quarrelled bitterly in the past 18 months despite being allies during the 2004 "Orange Revolution" that brought both of them to power.
Last month Yushchenko accused Tymoshenko of populism and uncontrollable spending. He said he was disappointed with the IMF for allowing the government to get away with its policies.
"If the IMF takes a principled position towards the measures that are being taken today, then maybe the plan will work," Yushchenko told a forum of foreign investors on Tuesday.
"But if the plan would be one of technical replacement of reforms and the encouragement of a policy of waiting until the crisis ends, then this will be a tragedy for Ukraine," he said.
The IMF will complete its review on Oct. 26.
The government has refused to raise household gas prices - an unpopular move in the run up to the election but one that would have boosted the finances of state energy firm Naftogaz, which now saps the state coffers for support.
Some analysts have said the government will try to argue that by restructuring Naftogaz' foreign debts, it had relieved pressure on its finances, thus achieving the same aim as increased gas prices would have. .
The IMF has also said it was displeased with a parliamentary bill that forced the central bank to place over $1.2 billion of profits it has not yet made into this budget year's budget. This bill came into forced last week.
The IMF had amended some of its conditions since the bailout was agreed last November allowing a 2009 budget deficit of 6 percent of gross domestic product against an initial demand of a balanced budget.
Analysts think the budget deficit by the end of the year may balloon beyond that and beyond the 4 percent favoured by the IMF for next year, as political parties seek to increase social spending ahead of the election.
Parliament on Tuesday approved a bill increasing the minimum wage, despite protests from Tymoshenko that it would be like placing "an atom bomb under the finances of the country".
The minimum wage will increase from 744 hryvnias ($93.4) a month in November to 869 hryvnias in January and will continue to rise every quarter to 922 hryvnias ($116) by the end of 2010.
The average wage now is 1,919 hryvnias ($240).