By Richard Balmforth
KIEV (Reuters) - Ukrainian President Viktor Yanukovich on Sunday nominated Mykola Azarov for a second term as prime minister, opting to keep a tried and tested lieutenant at his side rather than take the risky step of naming a newcomer as economic problems mount.
Yanukovich, who announced his choice before leaving on a visit to India, discarded several other possible candidates, including central bank governor Serhiy Arbuzov, who is close to the Yanukovich family.
Azarov's nomination has to clear the new parliament in its first session on December 12 following an election on October 28. But its approval is taken for granted since the ruling Party of the Regions, the largest single faction, should be able to muster a majority easily.
One of the first big challenges of the new Azarov government will be to negotiate a new bailout program from the International Monetary Fund to follow a $15 billion package which was suspended in early 2011.
An IMF mission is due to visit late in January for what are expected to be tough talks on nailing down a new stand-by arrangement to help Ukraine repay, or refinance, more than $9 billion debt falling due to foreign creditors in 2013.
This includes $6.4 billion already owed to the IMF which Ukraine says it hopes to refinance.
Azarov, 64, who has served as prime minister since Yanukovich won the presidency in February 2010, is regarded as a safe pair of hands and a neutral figure who is not linked to any specific group of billionaire power-brokers in the country.
But his refusal to enact recommendations - including raising household gas prices which the Fund sees as essential to control the budget deficit - prompted the IMF to suspend lending under the previous package.
Whether the new Azarov government will prove more flexible in dealings with the IMF now that the election is out of the way remains to be seen.
But economic problems continue to mount in the former Soviet republic.
Apart from foreign debt repayments due next year, the Azarov government has failed to win any concessions from Moscow in negotiations to secure cheaper supplies of gas.
Ukraine's trade deficit is widening due to the falling global demand for steel, its main export, putting pressure on the hryvnia exchange rate and central bank reserves which shrank by $1.4 billion last month to $25.4 billion.
In an attempt to curb imports and boost revenues, Yanukovich last week signed a law raising import duties on more than 100 goods such as chemicals and car parts to the highest level allowed under Ukraine's deal with the World Trade Organization.
The mood of foreign investors was reflected last Friday in a revaluation by credit agency Standard and Poor's which downgraded Ukraine's sovereign rating by one notch to 'B' with a negative outlook.
S&P said even if Ukraine managed to agree a fresh deal with the IMF, there was a risk it would fall apart, as happened with the previous two financing programs.
The post of prime minister has often been used as a springboard for the presidency in Ukraine. But Yanukovich, who is widely expected to take a run at a second term as president in 2015, is unlikely to fear any threat from Azarov, a staid conservative who harbors no ambitions in that direction.
Some analysts had conjectured Yanukovich might replace Azarov with someone more flexible ahead of the new talks with the IMF.
But giving the job to the less experienced 36-year-old Arbuzov, whose mother runs a private bank owned by Yanukovich's family, could have been risky given the scale of Ukraine's economic problems.
(Writing By Richard Balmforth; Editing by Andrew Heavens)