(Adds Fitch downgrade)
By Natalya Zinets
KIEV, Feb 12 (Reuters) - Ukrainian Finance Minister Viktor Pynzenyk quit on Thursday in a budget row with the prime minister, and the IMF told authorities it wanted better “crisis management” from the ex-Soviet state.
Pynzenyk described himself as a “hostage to politics”, citing differences over a deficit contained in the budget backed by Prime Minister Yulia Tymoshenko. The International Monetary Fund had made a deficit-free budget a condition of a $16.4 billion loan.
Ukraine sought the loan to help it weather the world financial crisis which has slashed the value of its hryvnia currency and battered the commodity exporters that form the core of its economy.
“In current conditions, the professional job of finance minister has become a hostage to politics,” Pynzenyk said in a statement to parliament that appeared on his ministry’s website.
“The finance minister cannot change the situation. Nor can he walk away from his professional actions. There is no point in remaining in the job of finance minister in such conditions.”
A respected online news service last month published a letter it said was written by Pynzenyk denouncing as unrealistic the government’s budget allowing for a deficit equivalent to 3.0 percent of gross domestic product. Pynzenyk criticised publication of the letter, but did not formally deny writing it.
Ukrainian politics has been dominated by a split between Tymoshenko and President Viktor Yushchenko, former allies in the 2004 “Orange Revolution” who are now estranged.
Reflecting the absence of political consensus, Fitch Ratings downgraded Ukraine’s credit ratings on Thursday, saying it faced increased risks of a banking and currency crisis, especially if it failed to implement its agreement with the IMF.
“The political consensus needed for Ukraine to adhere to its IMF-backed program is fragile ... “ it said. [nN12465622]
An IMF mission left Kiev last week with no decision on disbursing the second instalment of the loan for Ukraine. Fund spokesman David Hawley, speaking in Washington, said talks were proceeding, but concerted action was needed from authorities. He gave no date for a return of the mission.
“Discussions between the authorities and fund staff on outstanding issues will continue in coming weeks and we expect the mission to return to Kiev to continue these discussions,” Hawley told reporters.
He said Pynzenyk’s resignation “merely serves to underline the importance of strong crisis management being essential to the success of the programme”.
Yushchenko issued a new call for the cabinet to review its strategy and come up with a more “realistic” budget.
Tymoshenko, addressing reporters in Kiev, noted that the minister had been on sick leave and in hospital for some time.
“Not all officials are able to deal with the world financial crisis. Not all are able to work and react to the challenges in a proper manner,” she said.
“Those who are the weakest give ground on the key positions and end up leaving and dealing with other matters.”
Tymoshenko, who had also fallen out with Yushchenko over her approach to Moscow for a $5 billion credit, said a new minister would soon be appointed.
In a separate action that appeared linked to IMF demands, the central bank said it would no longer sell foreign currency to banks that conduct transactions at exchange rates exceeding the average market value of the U.S. dollar.
The bank suggested it could take other punitive measures against banks conducting such transactions. Dealers said the move was likely to create further dollar shortages. (Writing by Ron Popeski, editing by Myra MacDonald)