KIEV, Feb. 25 – New disagreements emerged between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko on Monday, now over the government’s economic policy and planned anti-inflationary measures, with presidential officials criticizing the government over a spike in inflation.
Ukraine’s inflation was rising fast over the past six months, but it accelerated in January after the Tymoshenko’s government started making massive payments bailing out millions of people on failed Soviet-era bank deposits.
The measures, submitted by the government to the Yushchenko office, apparently contain a number of controversial administrative regulations aimed at keeping consumer prices under control.
“We believe that administrative measures are not the solution,” Roman Zhukovskiy, the head of the economic department at the Yushchenko office, said Monday. “Now these trends get further development.”
Yushchenko was expected to meet Tymoshenko on Monday to get a briefing on the anti-inflationary plan, but the meeting was postponed until Wednesday. She was also expected to brief the president on her last week’s gas talks in Moscow.
Yushchenko, who turned 54 on Saturday, on Monday accepted happy birthday wishes from government officials, including Tymoshenko, political and religious leaders.
Ukraine’s consumer prices accelerated to 2.9% on the month in January, up from 2.1% in December 2007, pushing the year-on-year inflation in January to a whopping 19.4%, according to the State Statistics Committee.
Yushchenko, who called the inflation “very serious,” demanded a concerted effort from the government and from the National Bank of Ukraine to stop the inflationary pressure. The president specifically warned the government against using administrative tools.
But the government’s anti-inflationary plan contains a number of administrative measures, including controls on prices of power, natural gas and water supplies to households, according to a person familiar with the plan.
The plan also anticipates keeping budget the deficit within 2% of the GDP this year, which is in line with Yushchenko’s demand, and easing imports of some goods, such as grain and gasoline, to allow greater competition and to drive prices down, the person said.
But the plan doesn’t call for curbing social payments, the feature of the Tymoshenko government program that independent economists say is probably the main reason behind the rising inflation this year.
The developments put greater pressure on the NBU to hike its key interest rates again this year, following a dramatic two-percentage-point increase in early January to 10%.
But further interest rate hikes, together with monetary policy tightening, may stifle economic growth, Zhukovskiy said. (tl/ez)