The World Bank this week added fuel to the fire of controversy surrounding Ukraine's alleged misuse of foreign loans by requesting that its loans be included in an ongoing audit of past central bank transactions involving foreign money.
The government last month asked international auditors PricewaterhouseCoopers to audit the National Bank of Ukraine's transactions in 1997-98 after the Financial Times in late January first published articles alleging that Ukraine had misused aid.
The central bank said on March 7 that the first part of the audit, which mainly focused on its operations with hard currency reserves in late 1997, did not support the newspaper's allegations.
But a day before the announcement, the World Bank stepped in, asking that the use of some of the loans it has disbursed to Ukraine also be checked.
'The World Bank asked the [Finance Ministry] to use the opportunity of the comprehensive audit of the reserves of the NBU to also audit funds provided by the World Bank,' Gregory Jedrzejczak, head of the World Bank mission to Ukraine, told the Post on March 6.
Jedrzejczak said the World Bank had no evidence that the funds had been misused, but he declined to name the sum of money involved or say why the bank had requested the audit.
The first part of the audit, completed by PricewaterhouseCoopers, involved central bank transactions with reserves from July 1, 1997, through Jan. 31, 1998.
'The audit uncovered no operations corresponding, either in character or in size, to the operations cited in the [Financial Times Jan. 28, 2000] article,' the central bank's March 7 statement said.
A second audit, covering the wider period of Jan. 1, 1997, through Sept. 30, 1998, is to follow shortly. It was requested by the IMF after the publications of Financial Times articles alleging that the bank channeled a significant part of its reserves into risky investments – against IMF advice.
In its recent series of articles, the Financial Times has alleged that the National Bank of Ukraine transferred about $600 million in currency reserves through Credit Suisse First Boston investment bank in 1997-98 in an attempt to exaggerate the size of its foreign currency reserves and conceal risky investments from the fund.
Serhy Yaremenko, head of the NBU's currency regulation department, said on March 7 he did not know if the ongoing PricewaterhouseCoopers audit would cover World Bank loans.
Meanwhile, World Bank officials said the audit of the central bank's funds would be part of the ongoing checks, rather than a separate audit. 'Everything that went through the NBU accounts during that period will be checked,' said Dmytro Derkach, spokesman at the World Bank's Kyiv office.
Derkach also refused to specify the amount of money involved. To date, Ukraine has received $1.8 billion from the World Bank through several loan programs.
Jedrzejczak said that according to documents his office has received from the Finance Ministry, the World Bank's money was mostly used to pay off debts to foreign lenders and to finance budget spending.
'The documents provided have not presented any evidence of the misuse of [World Bank] funds,' Jedrzejczak said.
Unlike IMF loans, which go directly to the NBU, World Bank funds are placed in Finance Ministry accounts.
Jedrzejczak said on March 2 that since the Finance Ministry kept some of its money in central bank accounts, 'there is a reason for the audit,' Ukrainian media reported.
Ukraine's finances must receive a clean bill of health from the PricewaterhouseCoopers audit if the government is to unlock the remaining funds from a $2.6 billion IMF loan, which was frozen last September. The government urgently needs the money to pay off over $3 billion in foreign debt repayments due this year. About $900 million of that sum is owed to the IMF alone.
The World Bank also has put its assistance on hold pending resumption of IMF aid.
The government is presently negotiating with foreign creditors over restructuring payments on several bonds, together worth more than $2.6 billion, which fall due this year and next year. The government wants to swap that debt for a new, seven-year bond.
But even if it succeeds with its swap offer, many analysts doubt that Ukraine, whose hard currency reserves presently stand at just $1.1 billion, will be able to cope with the rest of its 2000 debt obligations without more external aid.
