Ukraine achieves Staff Level Agreement with the IMF, but some more guarantees are reportedly required by the fund

Prime-minister Honcharuk discussing new loan program with the IMF. Source: Liga.net 

Politics

2020 and 2021, like 2019, are critical years for Ukraine, with the highest repayments for state debt. Cooperation with the IMF is especially important at this time, to ensure stable economic growth. Then, the positive outlook for the 2020 budget — projected to be the budget of real development — would have a basis for implementation.

The Staff Level Agreement between Ukraine and the IMF has already been achieved on 7 December, but what is needed to establish the official cooperation with the IMF? Neither side of the negotiations has laid out specific enough shortcomings, however, others have offered scenarios. Former People’s Deputy Serhiy Leshchenko and the economic news agency Liga.net — referring to the officials of the National Bank of Ukraine (NBU) — believe the IMF’s main concern is Privatbank. Fund officials may well be requiring a new law and other legal instruments, to eliminate any possibility of Privatbank returning to its former owner, oligarch Ihor Kolomoyskyi.

Recent court proceedings implicating Oleksandr Pysaruk, head of the executive board of Raiffeisen Bank Aval, are also concerning. Pysaruk previously carried senior roles in major international banks, the NBU, and the IMF.

Kolomoyskyi and Privatbank: how the government is heading toward solution that will finally put an end to this story and open the possibility of an agreement with the IMF

On 22 November, during the last day of the IMF mission to Ukraine, Kolomoyskyi made the bold statement: “The IMF knows that PrivatBank will be returned to me in the near future.”

He had good reasons to say so. On 19 December, the sixth appeal court of Kyiv will likely announce the final decision in Kolomoyskyi’s claims against the national bank. The court can decide that Privatbank was nationalized illegally. Kolomoyskyi won the first court hearings on this matter in April. A repeated outcome will certainly stimie negotiations between the government and the IMF.

Reportedly, the IMF has already asked Kyiv to be ready in the event of a negative court decision. The IMF is encouraging the government to start preparing measures that will not allow Kolomoyskyi to retake the bank even if the court decides so.

The most important such measure will be to amend laws related to bankrupt banks — in particular, the law on the system of deposit guarantees. The amendment should allow full control of bankrupt banks by the Fund of deposit guarantees for longer time, without obliging a bank closure or immediate capitalization as does the current law.

If such amendments were adopted — despite whatever court decision came down — the Ministry of Finance would take back the UAH 155 billion that was used to save Privatbank in 2016. Irrespective of Privatbank being ruled in favor of Kolomoyskyi, it would be legally bankrupt and nationalized once again.

Under this amended procedure, no further action could be taken to question the control of Privatbank. In this scenario, either a positive or a negative court ruling would still result in the government retaking Privatbank.

How long should talks with the IMF continue, to reach a new agreement

On 22 November, the IMF mission completed its visit to Ukraine, still without a new agreement. This resulted in a wave of skepticism among Ukrainian economists. In its press release the IMF stated:

“The IMF staff team had constructive and productive discussions with the Ukrainian authorities and commended them on the considerable progress made during the last few months in advancing reforms and continuing with sound economic policies…”

However, as Dmytro Boyarchuk, executive director of CASE-Ukraine, writes in his FB post:

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“When I read in the IMF releases ‘… constructive and productive discussions…,’ I start worrying. As a rule, this phrase from the IMF translates as ‘negotiations are stalling.’”

This last IMF release, almost word-for-word, matches the releases published between 2010 and 2013. The IMF repeatedly held “constructive talks” with the Yanukovych-era authorities, after their last tranche in 2010.

Nonetheless, both Prime Minister Oleksiy Honcharuk and Minister of Finance Oksana Markarova have asked the media not to “disinform” the public, as they work with the IMF toward the new three-year agreement normally.

Despite widespread skepticism, on 7 December president Zelenskyy and IMF director Kristalina Georgieva confirmed that they’ve achieved a Staff Level Agreement. It’s not yet the final agreement that should be confirmed by the board of the IMF and depends on the ability of Ukraine “to safeguard the gains made in cleaning up the banking system.”

Kolomoyskyi’s pressure

Meanwhile, the managers of Privatbank’s main office have been working under the pressure of a workers rally. The protesting workers are employed by the Nikopol Ferrum Alloy Factory which, not surprisingly, belongs to Kolomoyskyi. The protestors appear to have a strategy for their actions. The workers are allegedly demanding their salary from the bank. Behind the scenes, however, the factory has leased a large parking lot near PrivatBank for UAH 1.5 million ($60,000) where workers protest. In reality, only Kolomoyskyi could put up such a high sum for the parking lot where just workers will stay. Naturally, he asserts that he does not want to interfere in the decisions of factory management. His words belie that claim: “If Privatbank continues to behave in that manner, workers may even enter the bank.”

Workers of the Nikopol Ferrum Alloys Plant rally in front of the PrivatBank headquarters in Dnipro on September 19. “PrivatBank didn’t pay its debt to us. Who’s next?” the sign says. Source: Kyiv post

On 25 November, another group of protesters broke into the hall of the national bank, but the police held them back. They claimed to be dissatisfied with the bank policy that strenghened the value of the hryvnia. A stronger hryvnia is unfavorable for Kolomoyskyi, whose enterprises export metals from Ukraine.

The factory protesters were taking advantage of a previously-announced NGO rally. Under the placard “Stop Corruption,” their protest was already underway. By supporting the NGO protestors, the factory workers essentially usurped their protest. Not to be overlooked, they came from several of Kolomoyskyi’s metal factories — Nikopol Ferrum Alloy Factory, Zaporizhzhya Ferrum Alloy Factory, Marhanets, and Pokrovsk factories, and Dnipro Metallurgical Plant.

Protesters entering the NBUof Ukraine. Source: Delo.

The NBU pointed out that the workers’ onslaught, undoubtedly orchestrated by Kolomoyskyi, has been going on for weeks. They believe the real purpose behind the attacks is to create information chaos which would discredit the NBU as a national regulator.

Protesters want to stop reform intended to clean up the banking sector; to change its leadership and eventually restore biased management of the national bank; and to hinder Ukraine’s cooperation with international partners. They especially want to eliminate the IMF’s support of the government which is demanding that former owners of bankrupt banks return funds to the state.

Kolomoyskyi’s shadow in the court hearings against other bankrupt banks

In November, the court hearings against the owner of the bankrupt VAB bank, Oleh Bahmatiuk finally started. In 2014, the NBU had issued a stabilizing loan of UAH 1.2 billion to the bank. However, most of these funds were laundered as debt repayments to the bank owners’ companies. Subsequently, 40 days later, the VAB bank was proclaimed insolvent and closed.

Today, Bahmatiuk is accused of a UAH 30 billion debt to the state, which VAB and his companies must return. He has agreed to pay only UAH 7 billion, which has prompted a court hearing.

Although Bahmatiuk’s guilt has been more-or-less accepted by society, the real controversy lies in the suspicion to Oleh Pysaruk — Raiffeisen Bank Aval CEO and former deputy minister of finance, as well as former IMF official. The Raiffeisen Bank Aval has already paid the pledge for Pysaruk stating:

“We are convinced that all suspicions will be lifted from Pysaruk in the near future, and that he always adheres to the highest professional and ethical standards, working for both Raiffeisen Bank Aval and many years at the IMF and other international institutions.”

Oleksandr Pysaruk. Source: EPA

The National Anti-Corruption Bureau (NABU) has accused Pysaruk of fraudulently issuing the UAH 1.2 billion stabilizing loan to VAB, when there clearly was not enough capital to guarantee repayment. However, as economist Serhiy Fursa argues, at that time the national bank did not have the time or resources to confirm all the capital. The pressing task at hand was to stabilize the system while under heavy economic crisis, caused by Russian aggression in the Donbas.

No evidence was presented that Pysaruk received any personal profit from the VAB loan, and 14 prominent business people have vouched for him. Among them were current Head of the NBU Yakov Smoly; deputy heads of the NBU, Kateryna Rozhkova, Oleg Churiy, Dmitry Sologub, and Roman Borisenko; former Raiffeisen Bank Chairperson Volodymyr Lavrenchuk; and Dragon Capital Investment Fund Chairman Tomash Fiala.

Although at the present time, there is no direct evidence, Kolomoyskyi could also be interested in the accusation of Pysaruk on this case. The very public process against the former deputy head of the NBU and IMF official is yet more evidence of pressure on the national bank — on top of factory demonstrations. No doubt, Kolomoyskyi would have willingly sued the head of the national bank at that time, Valeriya Hontareva, but she is in the UK right now.

As a result, rallies and Pysaruk’s case are very likely arranged to discredit NBU and Ukraine at time of important talks with the IMF. Fortunately, Ukraine seems to steadily overcome this testing, after Staff level agreement reached with the IMF and especially if parliament finally passes required law to secure Privatbank.

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Edited by: Vidan Clube

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