Ukraine political squabbles delay formation of new government

By Pavel Polityuk and Natalia Zinets KIEV (Reuters) - Squabbling over top jobs in Ukraine's government delayed a parliament vote on a cabinet reshuffle on Tuesday that is likely to see the departure of Finance Minister Natalia Yaresko and tighten President Petro Poroshenko's grip on key policy areas. Legislators are in the final stages of agreeing a new coalition following the resignation of Prime Minister Arseny Yatseniuk in the biggest shake-up in Ukraine since the 2014 Maidan uprising brought in a pro-Western leadership. Deadlock has stalled billions of dollars in foreign loans and the delay in forming a government will frustrate Kiev's allies, including the United States, who warn that political infighting can threaten efforts of recovery for the war-hit economy. A close ally of Poroshenko, Volodymyr Groysman, is up for nomination to replace Yatseniuk who has headed governments since the "Maidan" street uprising which forced the Moscow-backed president Viktor Yanukovich to flee. But Oleksiy Goncharenko, a deputy in Poroshenko's BPP faction, told journalists there was still no agreement on who would fill the ministerial posts of economy, energy, culture and health. The vote on the coalition and government would "hopefully" take place on Wednesday or Thursday, he said. But MPs said the new cabinet would not include Yaresko and some other foreign-born technocrats brought in late in 2014 in the hope that their outsider status and international experience would help Ukraine root out corruption. Her departure could be a disappointment for some of Ukraine's Western allies, who have praised her stewardship of the country's finances amid economic meltdown and a separatist conflict. SENSITIVE POST It has not been clear if Yaresko, who successfully led hard-nosed negotiations with Ukraine's creditors to restructure $18 billion in foreign debt in 2015, would want to serve in a Groysman government. The finance minister post is especially sensitive given the cash-strapped country's strategic dealings with the International Monetary Fund and other foreign lenders. The finance ministry press service has declined to comment on questions about Yaresko's future plans. Oleksandr Danylyuk has been chosen to take over from her if Groysman is approved by parliament as prime minister, according to several lawmakers. Danylyuk, 40, is the deputy head of Poroshenko's administration and his appointment to head the finance ministry would increase the president's grip on policymaking - something that will upset some of the reformists. Poroshenko and Groysman have publicly supported the IMF economic reform programme and vowed to fight graft. But the slow pace of reform of the prosecutor's office has prompted some to question Poroshenko's will to change the status quo. Public perception of Poroshenko's commitment to tranparency took a hit last week, when the "Panama Papers" data leak showed he had placed his Roshen confectionary business assets in an offshore account, prompting the president to defend himself repeatedly against accusations he had tried to evade tax. "I think this government will probably have six months to a year in power, however I definitely don't believe in the reformist abilities of these people." Serhiy Leshchenko, a reformist lawmaker in BPP, told reporters. "Negotiations on the new cabinet are becoming a farce ... patience has a limit," Interior Minister Arsen Avakov wrote on Twitter. (Additional reporting by Alexei Kalmykov; Writing by Alessandra Prentice; Editing by Richard Balmforth)