Parliament’s extraordinary session. Photo: umoloda.kiev.ua
On Monday, 30 March 2020, the Ukrainian parliament made a significant step towards receiving a loan from the International Monetary Fund (IMF) that is crucial to the country amid the coronavirus crisis. The bill, named Improvement of Some Mechanisms of Regulation of Banking Activity, passed its first reading during an extraordinary session of Parliament. Ukrainian media has dubbed the bill the “Anti-Kolomoyskyi Bill,” referring to the oligarch Ihor Kolomoyskyi, whose financial institution PrivatBank was nationalized in 2016. That day, Parliament was working by the late night and after midnight voted for another historical law, on the opening land market (read about it in the next articles).
The substance of the bill was negotiated between the IMF and the Office of the President. In adopting it, the IMF’s continuing support for Ukraine will range from $5.5 bn to $10 bn.
Many MPs expressed deep concern for the future of Ukraine if the bill is not passed. The statement published by MP Anastasia Krasnosilska, Servant of the People faction, reads:
“We will stop being reliable partners, at least for the next 10 years – all the international investors will avoid us. We will not be able to obtain any loans from the international financial institutions. Without them it will not be possible to stimulate the economy and carry out successful reforms. Government assets will be bought for nothing. Hryvnia [Ukrainian currency] will fall, inflation will be uncontrolled, unemployment will rise.”
On the other hand, those MPs supporting the Kolomoyskyi group argued the bill violated the Constitution of Ukraine. They claimed it was not important compared to other initiatives Ukrainians are waiting for during the COVID-19 pandemic. Oleksandr Dubinskyi, Kolomoyskyi’s main proponent in Servant of the People, said that the loan would be misappropriated anyway.
Due to quarantine conditions, and no doubt other excuses, Parliament’s extraordinary session had been postponed several times. In fact, the Anti-Kolomoyskyi Bill had not even been added to the agenda.
However, on 30 March the meeting did take place in a rare extraordinary parliamentary session, and President Zelenskyy himself attended – clearly to persuade MPs to support the bill. He stated:
“It is very important for us today to support the economy of Ukraine, and the people who work at enterprises. It is very important for us that the memorandum with the International Monetary Fund is signed. You are well aware that the two main conditions are land law and banking law.”
Eventually, 267 MPs voted for the bill. Specifically, 198 MPs from Servant of the People, 25 from former President Poroshenko’s European Solidarity, 17 from Voice, 15 from Trust, two from For the Future, and 10 MPs with no official affiliation. The Opposition Platform for Life and Yuliya Tymoshenko’s Fatherland did not vote for the bill.
What the bill is about and how it is related to Kolomoyskyi
This watershed bill guarantees that funds appropriated from private financial institutions will not be returned to their former owners. However, should the National Bank of Ukraine, through a court decision, recognize the legitimacy of a bank’s insolvency, mechanisms for compensation would be put in place. Limits to the total sum of compensation would be established. The bill makes such a scenario very unlikely to be implemented.
Privatbank — the country’s largest bank in terms of total assets — owned by oligarchs Ihor Kolomoyskyi and Hennadiy Boholiubov, was seized and nationalized during the night of 20 December 2016.
Predictably, under government pressure Kolomoyskyi did return a segment of his assets, for which he aims to receive compensation amounting to $2 bn (about UAH 55). The IMF, in its turn, intends to bring Kolomoyskyi to justice for personally absconding UAH 155 bn (about $5.5 bn) from PrivatBank.
Considering the IMF an opponent, Kolomoyskyi himself — and through his MP sycophants — is promoting the narrative that defaulting on loans is the right solution for Ukraine, and that the IMF will prove to be a yoke to the nation.
Why the IMF loan is crucial for Ukraine
The government has sped-up its attempts to retrieve the much-needed funds from Kolomoyskyi, because of the calamity caused by the COVID-19 pandemic.
However, the state of Ukraine’s economy was worsening even before the pandemic. Yuliya Samaeva, economy editor of dt.ua media, comments that economic problems exacerbated due to a drop in the country’s production levels. The state’s budget depends on revenue received. Without implementation of reforms, revenues did not grow and funding fell short. Thus, major underfunding had the effect of the country’s deficit to grow.
Samaeva goes on to say that as of 27 March, the state budget reflected revenue of UAH 199 bn (about $7 bn) instead of the forecasted UAH 238 bn (about $8.5 bn). As a result, the deficit in the first quarter increased to UAH 40 bn (about $1.4 bn). The marginal rate for the year is UAH 96 bn (about $3.4 bn).
“If we move in this direction further, by the end of the year the deficit of the state budget will more than double the planned indicator. At the same time, Ukraine will need UAH 492 bn (about $17.5 bn) this year only for payments on external and internal debts. And in order to meet the 2020 budget, the Finance Ministry needs to borrow some UAH 230 bn (about $8.2 bn) in the domestic market and about UAH 134 bn (about $4.8 bn) in external ones.”
Samaeva emphasizes that due to the global pandemic crisis, the IMF remains the only source from which the country can receive financial aid.
Meanwhile, adopting the “Anti-Kolomoyskyi Bill” is not the only condition of the IMF. Another,— perhaps even more controversial — is the demand for a bill to free-up the land market. This is nothing short of the most tendentious issue, not just for politicians, but for the Ukrainian people themselves.
Voting for the second reading of the “Anti-Kolomoyskyi Bill” takes place next week.