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Political dispute clouds prospects of U.S. aid to Ukraine

By Patricia Zengerle

WASHINGTON (Reuters) - A partisan political dispute over reforms of the International Monetary Fund looked likely on Friday to hold up U.S. aid for Ukraine.

Lawmakers in the Republican-led U.S. House of Representatives introduced a bill that does not include IMF reforms requested by the Obama administration, setting up a potentially time-consuming showdown with the Democratic-controlled Senate, which is expected to back the changes.

Except for the IMF reforms, the House "Ukraine Support Act" broadly mirrors a bill the Senate is due to consider next week, and is expected to pass.

Like the Senate measure, the House bill would put into law sanctions against individuals and businesses responsible for violating Ukraine's sovereignty, or tied to corruption, largely putting into law sanctions President Barack Obama introduced via executive order this week.

"Russia's illegal annexation of Crimea and intimidation of Ukraine should be a wakeup call," California U.S. Representative Ed Royce, the bill's co-sponsor and chairman of the House Foreign Affairs Committee, said in a statement.

The House measure also includes $50 million in aid to support transparency, accountability, rule of law, economic diversification and anti-corruption programs.

Both the Senate and House bills back $1 billion in loan guarantees for Ukraine. The House overwhelmingly passed legislation including only the loan guarantees in early March.

House Foreign Affairs will consider the House bill on Tuesday. The Senate Foreign Relations Committee passed its bill early this month, and the measure will be considered by the full Senate this week, starting with a procedural vote on Monday.

If both chambers pass their bills, the two must be reconciled in a conference committee before a final version can be approved and sent to Obama for his signature.

PHILOSOPHICAL DISPUTE

The Obama administration has been pushing Congress for a year to approve a shift of $63 billion from an IMF crisis fund to its general accounts. Administration officials argue that Washington must make good on a commitment from 2010 and maintain U.S. influence at the international lender, while strengthening an institution that will play a key role in stabilizing Ukraine's economy.

But some Republican lawmakers complain that the IMF changes would cost too much at a time of deficits and budget cuts and accuse Obama of trying to use the Ukraine crisis to force through the reforms. There is also a growing isolationist trend, particularly in the party's Tea Party wing, skeptical of any actions seen as giving up influence to international organizations.

Members of both parties said they hope the dispute will not delay aid for Ukraine, but could not say whether the Democrats or Republicans were more likely to yield if the bills pass each chamber as they now stand.

U.S. Representative Eliot Engel of New York, the top House Foreign Affairs Democrat, co-sponsored the House Ukraine bill with Royce. And Representative Nita Lowey, the ranking Democrat on the House Appropriations Committee, said last week at a Bloomberg breakfast that Senate Democrats should have dropped their bid for the IMF reforms so Ukraine aid could pass quickly.

But Arizona Republican Senator John McCain, who backs the IMF aid, said lawmakers should not let their concerns about the IMF reforms stall the Senate bill.

"To allow that to be a reason not to move forward after Ukraine has been the subject of a military invasion is almost incredible to me," he said on a conference call on Ukraine sponsored by the Atlantic Council on Friday.

McCain said he could not guarantee that the House would back the IMF reforms, but felt "optimistic." However, he added that Obama needs to weigh in very strongly to convince Congress and the American public of the importance of assisting Ukraine.

(Reporting by Patricia Zengerle; Editing by Sandra Maler and Grant McCool)

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