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Ukraine's president says fighting must not delay reforms

Source: Reuters - Fri, 1 Aug 2014 18:59 GMT
Author: Reuters
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* Parliament backs key economic legislation

* Economy further strained by fighting in east

* Parliamentary election looms within months (Adds more quotes)

By Natalia Zinets and Timothy Heritage

KIEV, Aug 1 (Reuters) - Ukrainian President Petro Poroshenko said on Friday the military conflict with pro-Russian separatists in the east of the country must not be allowed to hold up economic reforms.

Hailing the passage of legislation by parliament on Thursday which enables the government to increase funding to the army, Poroshenko said unity was vital in Kiev to overcome an economic crisis as well as defeat the rebels.

His comments appeared intended to assure foreign investors that Ukraine is committed to taking the steps required under an international bailout and to persuade voters that the reforms are vital even though they could be painful.

"War is not a reason to delay reforms," Poroshenko said in a television interview. "Yesterday was a very important event in parliament - we managed to avert a serious political crisis."

Parliament agreed on Thursday to amend the 2014 budget to take account of falling revenue and release an additional 9.1 billion hryvnia ($758 million) to finance the military.

It also backed legislation allowing consortiums with European or U.S. companies to operate the ageing gas distribution system and rejected Prime Minister Arseny Yatseniuk's resignation, tendered after the chamber initially opposed the legislation in a vote last week.

Yatseniuk had said the government would default on its debt payments and miss out on the release of further funds under a $17-billion International Monetary Fund bailout if it failed to pass the legislation.

HOPES FOR MORE FUNDS

Poroshenko signalled he hoped international donors would increase their assistance to Ukraine, whose 2014 budget has been strained by the unexpected loss of revenues caused by the fighting in the industrial east.

"Ukraine will not be left alone to tackle its problems," he told a group of journalists sitting round a table with him.

Laws passed on Thursday also introduce an additional 1.5-percent personal income tax until the end of the year to cover the military, and taxes were raised on tobacco and the mining, oil and gas sectors.

Such moves could be unpopular because they will put an extra burden on household finances and the economy is already in rapid decline - it shrank by 2.3 percent between April, when the separatist rebellion began, and June, and the IMF sees gross domestic product falling by 6.5 percent this year.

Poroshenko, a pro-Western businessman who was elected in May, hopes to win public support for the austerity measures with a parliamentary election looming.

The exit of two parties from the ruling coalition last week amounted to the start of a campaign for seats in a legislature still packed with former allies of pro-Russian president Viktor Yanukovich, who was ousted by street protests in February.

"There will be a new parliament in the autumn which will start reforms," Poroshenko said. "We expect a pro-European, anti-corruption majority in the next parliament which will give us the prospect of EU membership."

Ukraine has said it has no plans to join NATO - Moscow has made clear it would resist this - but has signed trade and political pacts with Brussels and hopes one day to become a member of the 28-nation bloc.

(Additional reporting by Pavel Polityuk and Gabriela Baczynska Editing by Timothy Heritage and Alison Williams)

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