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Valery Lytvytsky (Reuters) – Ukraine’s central bank has enough foreign currency reserves to manage its finances until the end of the year despite the government’s failure to restart an International Monetary Fund bailout program, a senior central bank official said.

Late payments by Ukraine for Russian gas and a dispute over prices last January led Russia to cut supplies to Europe. However, so far this year Kyiv has settled its monthly gas bills on time, even though the IMF has withheld its latest tranche of funding.

“Even during this time when the IMF program is suspended, there will not be many risks to the markets,” Valery Lytvytsky, the central bank’s top adviser, told Reuters late on Dec. 23. “For us, this was an expected outcome and we are ready.”

He added: “The fact that the tranche has been suspended has stimulated us to be even more responsible in relation to the building up of our reserves ... As we understand it, the cooperation continues and the program has not been scrapped.”

A Ukrainian delegation met IMF officials last week to see whether it would loan $2 billion from the $3.8 billion tranche that had been due by the end of the year but withheld because of political bickering in Kyiv.

A senior Ukraine official said on Dec. 23 that the IMF had rejected the request. IMF officials in Washington and Kyiv were not available for comment. The IMF had said previously it would wait until after a presidential election next month before restarting the $16.4 billion bailout agreed over a year ago.

Both Ukrainian and Russian officials have said in recent weeks that a new “gas war” would be avoided. Russia’s Gazprom said on Dec. 22 that it would allow Kyiv slightly more time to settle the December gas bill because of the Christian Orthodox holiday season at the start of January.

Ukraine fell deep into recession at the end of last year, as its currency slumped; industrial output ground to a halt and exports of its key commodity – steel – plummeted. Rowing between President Victor Yushchenko and Prime Minister Yulia Tymoshenko has put the IMF program in jeopardy. Both will run in January’s election together with ex-premier Victor Yanukovych.

The IMF has already loaned Kyiv $10.5 billion since last November with some funds heading to the central bank reserves and others helping to plug a hole in the government’s budget and pay for gas supplies. Tymoshenko’s government, when short of cash, has demanded that the central bank helps with financing by buying state domestic bonds using freshly printed cash.

The government on Dec. 24 held a T-bill tender, selling 3-35 month bonds, on top of sales held every Tuesday. Yields on three-month bonds sold two days ago rose to 23 percent from 20 percent, after rising as high as 27 percent in recent months.

The IMF cash that went to the central bank has helped it intervene on the interbank market almost daily since the start of last year, selling dollars from its foreign currency reserves to stem the weakness of the hryvnia.

As of November, however, political and economic factors have supported the hryvnia, enabling the central bank to buy up dollars while keeping the hryvnia stable at about 8 per dollar. It intervened again on Dec. 24.

Lytvytsky said the central bank has bought up $500 million since the start of the year. The central bank has reserves of more than $26 billion, he said. It must have net reserves – minus the IMF’s $10.5 billion – of $15 billion by the end of this year, according to IMF criteria.