Two days ago, the government looked poised for a significant win in the fight against corruption.
A London court had ordered to freeze $2.5 billion worth of assets of former PrivatBank owners Igor Kolomoisky and Gennadiy Bogolyubov, with the judge issuing the freeze order one day after the lender filed a complaint against its former owners.
But within 24 hours, what first appeared to be a victory for Ukraine had devolved into a crude political battle between two cabinet-level members of President Petro Poroshenko’s administration.
Finance Minister Oleksandr Danylyuk accused General Prosecutor Yuriy Lutsenko of blocking the asset recovery efforts by opening a criminal investigation into the hiring of two foreign investigative firms – Kroll and AlixPartners – by the nationalized lender to conduct a forensic audit of the bank.
The dispute – while focused on allegations of substantial wrongdoing by Lutsenko – also showcases how much of the government’s financial policy leadership has degenerated into disorder.
Playing politics
Danylyuk’s call for Lutsenko’s resignation comes after months of pressure from Kyiv politicians against him.
That includes a summer investigation into allegations that the finance minister evaded taxes while living in London. While that probe was closed in September, some observers called it politically motivated and linked it with the minister’s attempts at introducing transparency to Ukraine’s value-added tax refund system.
Volodymyr Fesenko, director of the PENTA center for political studies in Kyiv, pointed out that after Danylyuk’s call for Lutsenko’s resignation, “any criminal case against Danylyuk will be perceived as repression.”
“It’s understood that Lutsenko has a real grudge against Danylyuk,” Fesenko said. “The best defense is a good offense.”
One National Bank of Ukraine official, who wished to remain anonymous due to a lack of authorization to speak publicly, argued that the asset freeze could serve as effective leverage in reaching a peaceful settlement with Kolomoisky.
“It could end up being easier for the government to just accept a cash payment from Kolomoisky and end the fighting,” the official said.
Predicted
In the run-up to PrivatBank’s nationalization, the International Monetary Fund did not insist on a state takeover.
Rather, the memorandum shows the international lender pushing for a “resolution,” without specifying any one solution to the myriad problems presented by the bank.
The government was split on how to move – some advocated for totally liquidating the bank in an effort to prevent it from turning into a corrupt cash cow like other state-owned enterprises. But NBU officials and individual members of the IMF did push for the state to take over the emptied lender.
“All the losses from state-owned PrivatBank will be paid out from the budget,” said former NBU vice chairman and current International Institute of Business rector Oleksandr Savchenko in December 2016, days after the bank was nationalized. “Knowing the history of PrivatBank, I don’t think the former owners will give anything back.”
National Bank stays headless
Government fiscal policy has been partly hobbled since May, when then-NBU Governor Valeryia Gontareva quit without any replacement named. This week’s drama saw longtime NBU Acting Governor Yakiv Smoliy denied a shot at confirmation by the Rada.
In a Dec. 20 hearing, news website Ukrainska Pravda reported that Smoliy told the Rada’s banking committee that he would resign from his position as acting NBU governor if the Rada did not vote to confirm him upon nomination.
The Ukrainska Pravda account was corroborated by a senior NBU official.
“The banking committee didn’t like that very much,” the official said. Smoliy had been rumored to be up for a vote on Dec. 21, but after the committee hearing, his nomination was delayed.
The lack of a top official at the NBU is part of a slew of absences at top positions, including the Ministry of Agriculture, Ministry of Health, and Ministry of Information. The State Accounting Chamber is also without a permanent chief, as well as the Central Election Commission.
Fesenko said that Poroshenko’s inability to get preferred candidates accepted by the Rada could be Danylyuk’s saving grace.
“Nina Yuzhanina is a (Danylyuk) replacement option, but the problem is that it’s extremely difficult to pass personnel decisions through parliament,” he said.
