Nov. 10 (Bloomberg) -- Ukrainian officials will meet today to discuss ways of reversing commitments to increase state spending and persuade the International Monetary Fund to unlock a $3.4 billion installment of its bailout loan.

Government officials, the central bank governor and the chief aide of President Viktor Yushchenko will meet at 3 p.m. to “reach consensus” on meeting IMF terms, Deputy Prime Minister Hryhoriy Nemyria said at a press conference yesterday.

Ukraine is relying on international lenders to stay afloat after the credit crisis undermined demand for its exports, such as steel, and left its banking industry in tatters. IMF requests for cuts in social spending to reduce the budget deficit have been ignored by lawmakers and by Yushchenko.

Today’s meeting will “discuss what we can do with the law that increases minimum wages and we will also correct the parameters of the 2010 state budget draft,” Nemyria said.

International Monetary Fund Managing Director Dominique Strauss-Kahn said the Washington-based lender is ready to cooperate with Ukraine once it meets “some requirements,” and the key is to reduce social benefits, according to Nemyria. The IMF’s board was originally scheduled to meet on Nov. 2 to decide on the disbursement of funds.

Parliament has increased spending, including raising the minimum wage, in an effort to win voter support ahead of Jan. 17 elections. The IMF urged Yushchenko to veto the law, warning that it “threatens the economic stability” of the country. Even so, the president signed the bill into law on Oct. 30.

Suspended

Ukraine faces its first economic contraction after nine years of growth. Gross domestic product plunged an annual 17.8 percent in the second quarter, after shrinking 20.3 percent in the first. Ukraine turned to the IMF for a $16.4 billion loan last November, though political tussles have delayed the changes demanded by the Washington-based lender.

Cooperation between the IMF and Ukraine was suspended for three months this year as the country failed to live up to pledges to restrain the budget deficit. The country has received $10.6 billion in payments to date.

Yushchenko and Prime Minister Yulia Timoshenko have clashed over fiscal policy while the opposition blocked legislation until its demands for higher social spending were met.

Strauss-Kahn is stressing “full consensus, including with the executive branch of Ukraine, is necessary for the successful implementation of the economic program supported by the standby agreement,” the IMF said in an e-mailed statement yesterday. “The fund stands ready to work with the Ukrainian authorities as soon as such consensus has been reached.”

Also at stake is a loan of 610 million euros from the EU, which would be disbursed in two stages, with the first payment of 110 million euros to be transferred when cooperation with the IMF resumes, according to Nemyria. Ukraine will get a further 500 million euros after a European Parliament decision at either the end of this year or the beginning of 2010.

To contact the reporters on this story: Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net; Halia Pavliva in Kiev via New York at hpavliva@bloomberg.net

Last Updated: November 10, 2009 01:27 EST