KIEV, May 3 ??“ The government on Thursday increased budget spending by 5 billion hryvnias to boost wages and pensions in a populist move suggesting the coalition may be preparing to accept early election.

In a further sign of possible compromise, the government decided to disburse 127 million hryvnias to set up the state voter register, a step required for holding fair election.

The moves are the first indication since April 2 suggesting the government coalition may be considering accepting the plan for the early election as a way out of political crisis.

The pro-Russian government coalition has so far been refusing to finance the election that had been declared by pro-Western President Viktor Yushchenko.

Yushchenko dissolved Parliament last month and called for the early election after the coalition had tried to illegally create the pro-Russian majority in Parliament capable of changing the constitution at will.

The increase in wages and social spending sharply contrasts with the government??™s previous declarations that it would stick to a tough financial discipline to prevent growth in inflation.

The move, which may be apparently designed to boost popular support for coalition parties ahead of the June 24 vote, will be hard to implement as it puts significant pressure on the country??™s financial system.

???This means the government has put a period in its existence,??? Viktor Bondar, deputy chief of staff at the presidential office, said. ???It understands that these will be implemented by the next government.???

The government increased the spending on wages in the state sector by 4.2 billion hryvnias. The money is supposed to go to increase wages in sectors like the healthcare and education, increasing the average wages by about 20% from June 1.

Overall, the average wage for about 3.5 million people employed in the state sectors are supposed to increase at least 40% between October and March, according to Labor and Social Policy Minister Mykhaylo Papiyev.

Meanwhile, First Deputy Prime Minister and Finance Minister Mykola Azarov sought to calm down fears that the move would boost inflation. He said the government will take extra steps that would limit the negative impact of the spending on the economy.

???This increase in social spending should not affect inflation,??? Azarov told a press conference. ???When social spending grows proportionally to the economic growth the money supply is tied up with the supply of goods. We will increase the supply of goods.???

Ukraine recorded inflation at 1.3% in the first quarter, compared with 2% that had been originally expected by the government in the period. The government also expects that Ukraine will have inflation at 7.5% in 2007.

Although the government decided to spend 127 million hryvnias on state voter register, it had again refused to allocate more than 320 million that are required to finance the early election.

Azarov said the budget spending will still have to be approved by Parliament, which may require Yushchenko to suspend his decree that had dissolved the legislature. "I know no other procedure," Azarov said. (tl/ez)