Ukraine's Yushchenko proposes rival Yanunkovich as PM

KIEV - Ukrainian President Viktor Yushchenko has proposed his pro-Moscow rival Viktor Yanukovich as prime minister in a deal that should end months of political deadlock.

Yushchenko said he decided to propose Yanukovich - the man he defeated in the 2004 "Orange Revolution" - after his rival signed up to a declaration of principles safeguarding Ukraine's drive for closer integration with Europe and market reforms.

After hours of talks deep into the night trying to hammer out an agreement, Yushchenko said in a televised address: "I have decided to put forward Viktor Yanukovich for the post of Ukraine's prime minister."

The Western-leaning Yushchenko backed away from his other, high-risk option of dissolving parliament and calling new elections, choosing instead a potentially awkward "co-habitation" with Yanukovich.

There was no immediate word on exactly what concessions he had wrung from Yanukovich who had been nominated as prime minister by a parliamentary majority made up of his Regions party, the Socialists and Communists.

The decision to nominate Yanukovich as prime minister will cheer markets. It ends four months of uncertainty as rival parties struggled to agree on a coalition government following an inconclusive parliamentary election in March.

Ukraine has been without a fully functional government since then and key decisions have been put on hold.

The nomination is a defeat for supporters of the "Orange Revolution" - the 2004 protests that overturned Yanukovich's presidential election victory and swept Yushchenko to power.

As president, Yushchenko retains control over foreign policy, defence and national security. But observers say he will struggle to push through his policies.

Yanukovich, from Russian-speaking east Ukraine, wants closer ties with Russia. He is less keen than Yushchenko on the country's push for Nato and European Union membership - key tenets of the "Orange revolution."

His party aides have said they will not block Ukraine's preparations for Nato membership. That is unlikely to happen for at least five years and all sides agree final accession will have to be put to a referendum.

On economic policy Yanukovich is seen as a pragmatist. He has said he will lower taxes for business, including the big industrial exporters that drive Ukraine's economy. Powerful business "oligarchs" are among his supporters.

He is also expected to use the central bank to weaken the hryvnia currency, which will also favour exporters.

Market analysts are concerned though that he will allow a return to cronyism and lack of transparency in economic policy. Challenging these problems was seen as one of Yushchenko's few achievements.

- REUTERS