By Alessandra Prentice
KIEV (Reuters) - Ukraine could lose a $17.5 billion (12.04 billion pounds) bailout from the International Monetary Fund unless it speeds up political reforms and curbs corruption, the IMF's head said on Wednesday.
Christine Lagarde's warning followed the shock resignation last week of the economy minister, Aivaras Abromavicius, which highlighted divisions inside the ruling coalition and its patchy performance on reforms promised under the IMF programme.
"Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported programme can continue and be successful," Lagarde said.
In an apparent reference to Abromavicius's complaint that vested interests continued to dominate Ukrainian policymaking, Lagarde said she was concerned about slow progress on corruption.
"Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history. It is vital that Ukraine's leadership acts now to put the country back on a promising path of reform."
Ukraine's other Western backers have warned it not to repeat the mistakes of the past when the euphoria of 2004's pro-European "Orange Revolution" eroded amid government infighting and a failure to stamp out graft.
Ukraine has been waiting since October for a third tranche of IMF loans, worth $1.7 billion, but slow reforms and political squabbles have delayed its disbursement.
The government's approval ratings have tumbled over concerns about the pace of change, two years after street protests over corruption toppled a pro-Russian leadership. It could face a no-confidence motion in parliament in mid-February.
Prime Minister Arseny Yatseniuk said political infighting was endangering Ukraine's future.
"They (Western backers) will only help us when the whole world sees that we are helping ourselves and pushing the country forwards," he told a ministerial meeting. "The political games that have been going on recently could cost the country too dearly."
The political crisis has weighed heavily on the Ukrainian bond market and helped push the hryvnia currency close to 11-month lows.
Even before Lagarde's statement, Ukraine's dollar bond spreads had risen above 1,000 basis points, levels seen as denoting distress, for the first time since November, when debt was issued to creditors after a restructuring.
The IMF programme is part of a $40 billion international bailout from donors including the United States and the European Union.
The U.S. ambassador said Ukraine should heed Lagarde's warning.
"Further argument here for completing reload of Ukraine's reformer-led government and zero tolerance for corruption," Geoffrey Pyatt tweeted.