Sergii Marchenko, 39, is the main money man in Ukraine today.
But while the Finance Ministry now led by him is responsible for the $50-billion state budget, collecting about $40 billion in revenue every year and attracting billion-dollar credits from international donors, Marchenko himself earns just $1,700 a month.
He took the job just a bit over 130 days ago when the COVID‑19 pandemic hit Ukraine and the country’s economy started to lock down. And he took over the post, which his predecessor, former Finance Minister Ihor Umansky, held for 26 days, for a small salary.
Along with the post, Marchenko got a chance to advance his career and his political clout. He felt comfortable returning to the Finance Ministry, his fourth stint there since 2002. “I was going home,” Marchenko says.
He walked straight into crisis, this one caused by the global COVID‑19 pandemic.
Marchenko’s aims in navigating the nation’s finances are to not pick sides in politics, to make Ukraine less dependent on loans from international donors and to fire ineffective officials. He also needs to battle the evergreen crises of tax evasion and customs service corruption.
No beef with politicians
Marchenko worked under ex-President Petro Poroshenko and his rival, President Volodymyr Zelensky. He claims good ties with both.
Before the appointment, Marchenko went through job interviews with Zelensky, Prime Minister Denys Shmyhal and Andriy Yermak, the president’s chief of staff. Most of the questions, Marchenko says, were about his personality more than about his track record.
“‘Do you have a backbone?’ Are you ready to play this game?’ they asked me,” Marchenko says.
However, there was one thing that still raises eyebrows — for a year, in 2018–2019, when he worked as deputy head of Poroshenko’s administration, the ex-president actively engaged in black PR against Zelensky.
Marchenko doesn’t like to recall the time he worked for Poroshenko. He says that, after he left, he needed time to digest and detach.
While digesting, Marchenko joined former Prime Minister Volodymyr Groysman’s political party to participate in the parliamentary elections in fall 2019. But the party didn’t get into parliament.
And although Marchenko admits his current job can’t be fully detached from politics, he says he isn’t a member of any political power and serves as a “hired finance minister” who “carries out clear tasks” and tries to be “politically correct.”
“The finance minister’s task is to balance,” he says. “And I don’t have any problems with that.”
And it seems Zelensky and Shmyhal liked him so much that Marchenko was given carte blanche on all personnel changes in his ministry and a guarantee that he would have the ears of the president and prime minister.
“They listen to me,” he says.
No IMF credits by 2023?
The International Monetary Fund controls Ukraine and pushes credits on the country under unfavorable conditions — these are two recurrent myths that Marchenko has heard often during his 130-day tenure at the ministry.
He dismisses these as “nonsense” and says Ukraine’s economy wouldn’t survive without money from international donors.
“Cooperation with the IMF isn’t good and and isn’t bad — it’s a given with our current situation,” Marchenko says. “We are still growing as a country and obviously require help.”
Ukraine has a 7.5% budget deficit, or $1.4 billion, that it can’t finance on its own, so Ukraine “ought to look for external financing to wade through these difficult times.”
One part of the aid arrived on June 12, three months after Marchenko took over the post: The IMF loaned Ukraine $2.1 billion under its 18-month, $5-billion aid program.
In all, by the end of 2020, Ukraine will have received more than $8 billion in credits.
The loans that Ukraine gets patch the holes in the state budget and are spent, for example, on debt repayment, pensions, salaries, roads and fighting the COVID‑19 crisis through the country’s $2.4-billion coronavirus fund.
As of June 30, the state owes $5.9 billion to the IMF alone and the National Bank of Ukraine (NBU) owes another $6.8 billion. So far, in 2020, Ukraine has repaid the fund just $220 million.
But loans from the IMF aren’t just about getting money — it’s a reputational issue. Successful cooperation indicates that the government of a country is capable of fulfilling the obligations that it undertook, including passing laws.
Thus, when the IMF backs a country, it means it will be easier for this country to get financial help from the World Bank and from the European Union. Without this cooperation, even foreign borrowing will be more difficult, Marchenko says.
And this cooperation was endangered when former NBU Governor Yakiv Smolii resigned on July 1 due to “systematic political pressure” — pressure that some believe came directly from President Zelensky. Then, the IMF pressed Zelensky to preserve the independence of the NBU.
“It is in the interest of Ukraine to preserve the independence of the NBU and it is also a requirement under the current IMF-supported program,” said Kristalina Georgieva, IMF managing director, in a statement at the time.
Now, Marchenko says, he’s in talks with the fund about their visit to Ukraine as “the country does all that’s needed for further cooperation.”
In the long run, however, Marchenko wants to make it possible for Ukraine to go without any international loans by 2023. “My ambition is to graduate from the IMF,” he says.
But first, Ukraine must get rid of schemes and corruption in its tax and customs services. When this is fixed, Ukraine can get from its taxpayers that same money that it currently receives from the IMF, Marchenko says.
Tax reform
While previous Finance Minister Umansky worked for less than a month, Marchenko believes a top manager, including a minister, should have at least a year to bring qualitative change.
When Marchenko was appointed, however, he fired Serhii Verlanov and Max Nefyodov, who had been the heads of the tax and customs services, respectively, for around five months each. Both had reputations as honest reformers.
Marchenko says they failed to do two tasks that they had: to make sure the budget is filled with tax money and to control the agencies they spearhead.
“It isn’t about reformers, Facebook posts or public opinion. You can dream, declare your values and tell us what your goals are, but you have to be a doer,” he says. “They didn’t belong there. Neither of them.”
Marchenko fired 50% of all the managers at the customs service.
And, according to him, the results of the current tax service prove it: The amount of taxes collected has increased by 2% over the last three months and the service intensified its battle against shady schemes used to avoid paying value-added tax and against corruption.
By fighting shady schemes with new algorithms and making some of the documentation work digitally, the tax service managed to bring more money in collecting value-added tax than before: In May, for example, the agency collected Hr 3.6 billion, while that turned into Hr 6.4 billion in June and Hr 5.6 billion in July.
“Gradually, I am cleaning these Augean stables,” Marchenko says, adding that, by May, Ukraine was lagging $1.6 billion behind in collection of the value-added tax and that, now, there’s a chance that, by the end of the year, the plans will be met. The lag is now $1.1 billion.
Apart from collecting taxes, the Finance Ministry aims to fight smugglers and grey businesses.
“It’s your key responsibility to fight smugglers, schemes and ensure Ukraine’s budget is filled with tax money,” he says. “When the budget doesn’t get money — someone is stealing it.”
Marchenko doesn’t call it reforms; it’s just performing core functions of the Finance Ministry. He believes that, in order to do reforms, one has to prove that they can be efficient as a manager who collects taxes and fights grey business — reforms will come after.
Compared to the $31,000 monthly salary of the head of state-owned postal operator Ukrposhta, Igor Smelyansky, or even the $15,500 that, by law, the head of the National Bank of Ukraine receives, Marchenko’s $1,700 a month makes him feel underpaid. But he claims he can’t be tempted by bribes. “I’m different,” he says.
In fact, Marchenko was so eager to work for the ministry that he would even agree to work for free, because the “ministerial post isn’t about money — it’s a chance to realize your potential.”
At the same time, he says he isn’t afraid of being abruptly fired.
“If they say, ‘Marchenko, that’s enough,’ I’ll move on. I won’t worry about it.” he says. “But while I’m here, I’ll try to prove I’m worthy.”
