Ukraine qualifies for new IMF loan, but at the expense of oligarchs

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Once again, it took Ukraine many months to break down internal opposition to vested interests in order to qualify for much-needed international aid. President Volodymyr Zelenskyy recently enacted two key bills: one to turn farmland into a salable commodity, and the other to prevent the owners of a failed bank that had to be nationalized from being able to recover it. . Having finally implemented these important prior reforms, he now expects to receive billions of dollars in much-needed loans from international financial institutions to help Ukraine close the budget deficit that has opened up as a result of the crisis. current coronavirus.

The International Monetary Fund (IMF) announced on May 22 that a staff level agreement was reached with Kiev on a $ 5 billion stand-by deal to help Ukraine weather the economic shock resulting from the COVID-19 pandemic (Imf.org, May 21). The deal is now subject to IMF board approval, after which the central bank of Ukraine (National Bank of Ukraine – NBU) expects further assistance of $ 3 billion from the ‘European Union, the World Bank, and the governments of Canada and Japan (BBC News — Ukrainian service, May 16). The EU, in particular, is expected to lend 1.2 billion euros ($ 1.32 billion) (Mof.gov.ua, April 22).

Ukraine hoped to get billions of dollars from the IMF and the EU last year. But nothing happened in early 2019, before Zelenskyy’s election to the presidency, because the coalition that had supported his predecessor, Petro Poroshenko, had repealed the main laws and regulations supposed to prevent the illegal enrichment of civil servants. While after Zelensky’s election in the second half of 2019, international aid was again blocked, this time by the new management team signaling that it would reconsider the nationalization in 2016 of Ukraine’s largest bank, PrivatBank. The buyout by the state of the over-indebted PrivatBank for 5.5 billion dollars had been agreed with the IMF. In addition, the IMF made it clear to the Zelenskyy administration that the time had come to lift the almost 20-year-old moratorium on sales of agricultural land, which several of its predecessors had promised to lift, but failed to lift. never acted on.

The IMF offered $ 5.5 billion last December, but Kiev continued to drag its feet on adopting the decisions required by the international lender, so the deal was withdrawn. The ensuing coronavirus pandemic turned out to be a blessing in disguise. Before the outbreak, Zelenskyy and his political faction, Servant of the People (SoP), which controls Ukraine’s unicameral parliament, apparently believed Ukraine could do without international aid. The ruling party effectively rejected the adoption of IMF demands in favor of supporting the vested interests of the oligarchs. The Ukrainian oligarchs wanted to preserve the status quo in agriculture and to regain control of the banks that went bankrupt in 2014-2016 because they had used these financial institutions to provide loans to their many loss-making businesses. But the coronavirus lockdown created a hole in the state budget equal to 7.5% of GDP, which only institutional investors could fill. As a result, the Zelenskyy administration was forced to make difficult choices between continuing to appease politically friendly oligarchs or pursuing the national interest.

On March 31, parliament passed a law lifting the ban on the sale of agricultural land. According to the bill, which Zelenskyy promulgated on April 28, this type of transaction is to be allowed from July 2021, so that millions of landowners should have an alternative to leasing their plots at low cost at low cost. large farms. At the same time, many provisions of the law decrease Ukraine’s investment potential. For example, it will be prohibited to sell more than 100 hectares of land to a single person, companies will only be allowed to buy agricultural land from 2024, and agricultural land can only be sold to foreigners after a referendum on the issue, while no timetable for such a referendum has been set (Liga.net, April 28).

It turned out to be more difficult to get the banking resolutions bill passed in parliament. The bill was stubbornly opposed by the former owners of PrivatBank, who sued Ukraine (both in Ukrainian courts and abroad) for its nationalization and apparently hoped Zelenskyy would take their side. The mass media of one of the former co-owners of PrivatBank, Ihor Kolomoysky, notably supported Zelenskyy’s presidential election campaign in 2019, and several people linked to Kolomoysky were elected to parliament on SoP lists last summer (see EDM, February 11, 2019, 23 april 2019, June 19, 2019, July 15, 2019, February 24, 2020). Parliament had to spend several weeks overturning more than 16,000 amendments that were submitted to the bill by People’s Deputies believed to be linked to Kolomoysky, in an attempt to delay his approval indefinitely. The national legislator even had to urgently modify its regulations, retroactively limiting the number of amendments that can be proposed by legislative act (Pravda.com.ua, April 16).

Finally, on May 13, the parliament adopted by an overwhelming majority what would be dubbed the “anti-Kolomoysky” bill, by 270 votes “for” in the 450-seat chamber, including 200 SoP votes. The bill, which Zelenskyy enacted on May 21, prevents owners of failed banks from recovering them. They can only hope for monetary compensation, which will be a complicated process, including an independent audit (Nv.ua, May 13). Commenting on the passage of the bill, the central bank of Ukraine said it categorically prevents the return of “zombie” banks to the market (Facebook.com/NationalBankOfUkraine, May 21).

The successful passage by the Zelenskyy-controlled legislature of these two crucial IMF-requested bills may help dispel the myth of a comedian-turned-president who must please the oligarchs in return for their support (including through their media platforms) . Once the IMF board approves new aid, which is expected to happen in a few weeks, Ukraine’s fiscal system is expected to be out of danger for now, despite forecasts of a 5-8 drop in GDP. % this year.

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