* Yushchenko wage decision stirs strong words from IMF
* Ratings agency sees adverse impact from decision
(Adds IMF statement)
By Sabina Zawadzki
KIEV, Oct 30 (Reuters) - Ukrainian President Viktor Yushchenko signed a bill on Friday that would raise the minimum wage by over 20 percent -- a move the International Monetary Fund chief said pushed its $16.4 billion bailout "off-track."
Uncertainty over IMF funding for Ukraine, one of Europe's worst performing economies, prompted credit ratings agency Standard & Poor's to cut its outlook to "stable" from "positive," while Fitch said the wage rises would pressure its own already low 'B' rating. [ID:nLU676442]
Prime Minister Yulia Tymoshenko has said the wage rises would place "an atom bomb under the finances of the country" and would cost an extra $10 billion.
But Yushchenko told reporters: "I would like to inform you that I have signed the bill."
Analysts have said the issue has become a political football ahead of a Jan. 17 presidential election in which Yushchenko, his bitter rival Tymoshenko and former premier Viktor Yanukovich will run.
IMF chief Dominique Strauss-Kahn reacted to Yushchenko's decision swiftly, telling Reuters it concerned him greatly.
"I'm very worried by the president's agreement to this bill which puts the programme we had signed off track and in this situation I'm afraid it would be very difficult to complete the next review of the programme," he said by telephone.
"That's why we are going to continue working with the Ukrainian authorities in the hope they can come together again to reach a position which would comply with the technical agreement we signed with the government."
In a statement released later in Washington, Strauss-Kahn took a somewhat softer tone.
He said he was "concerned" about the implementation of the wage law but did not say the programme was off track. He said the IMF would continue working with authorities "in the hope that they come together to reach a position that will allow early completion of the review."
The government has said it simply cannot afford the extra spending. As its revenues plummet, it has maintained social benefits but has also had to help state energy firm Naftogaz to pay billions for Russian gas imports.
Yushchenko and Tymoshenko have been embroiled in a fierce rivalry for 18 months that has blocked privatisations, delayed policy-making and once before hobbled the IMF programme.
Russian Prime Minister Vladimir Putin said on Friday Ukraine could have problems with its gas bills, raising the spectre of a repeat of January's row when Moscow cut gas supplies to Ukraine, affecting thousands in Europe. [ID:nLU635960] [ID:nLU335258]
WORLD'S RISKIEST DEBT
The IMF expects the economy to contract by up to 15 percent this year after industries ground to a virtual halt, steel exports plunged and the hryvnia currency lost over 60 percent last year, knocking the banking sector off balance.
S&P said the uncertainty over the IMF would sap investor confidence in the banking system and would also pressure the hryvnia. The currency was little changed on Friday at 8.095-8.195 a dollar. Last May it hit a peak of 4.474/$.
"Recent politically driven proposals to increase social expenditures imply a consolidated public sector deficit ... in excess of 10 percent of gross domestic product for 2009, which also reflects below-budgeted revenue collection," it said in a statement.
Analysts warned that if the increases come into force, the government would either pressure the central bank to print cash or be forced to raise already sky-high yields of over 27 percent on its domestic bonds to cover this year's budget gap.
Foreign debt insurance costs show Ukraine's debt to be the riskiest in the world with a 52 percent probability of default.
Credit default swaps are quoted at a mid-price of 1200 basis points which means it costs $1.2 million a year to insure $10 million of debt against default or restructuring over five years.
In theory, Yushchenko's signature brings the law into force, but the government has said it would contest it in court.
Yushchenko chose to announce his move as Tymoshenko unveiled sweeping measures to combat a feared epidemic of the H1N1 swine flu, in which one person has died.
Yushchenko, underscoring the perilous state of the country's finances, said Ukraine would turn to international institutions and foreign partners for help to buy medical supplies if Ukraine could not find the cash itself. (Additional reporting by Daniel Flynn in Rome, Pavel Polityuk and Natalya Zinets in Kiev; Editing by Ruth Pitchford)