New refrains, old song for Ukraine and IMF billions

New refrains, old song for Ukraine and IMF billions
By bne IntelliNews May 20, 2016

To the strains of a controversial winning entry to the Eurovision song contest, Ukraine is now firmly back in the rhythm of the past year. Pledges to stamp out the rot of corruption both abound and jar against old habits, while the country lurches on to the sweet refrain of jangling billions in credits.

Citing the need for "unwavering determination in the fight against corruption" that is emerging as a "litmus test for the government", the International Monetary Fund (IMF) has said it will turn the money tap on again for Ukraine in July if the new government steps up progress. This boosts hopes of recouping the $3.4bn in credits withheld since last September, and clearing the way for future tranches of the fund's $17.5bn bailout package agreed last year.

"It's for the one tranche, not a bundling [of the two previously withheld tranches]. The number is around $1.7bn," IMF spokesman Gerry Rice said on May 19, a day after an IMF mission concluded a week-long visit to Kyiv with exhortations to do more. Rice confirmed that the lender's board will make its second review under the bail-out programme in two months, which, if favourable, makes a $1.7bn wire in August very likely.

"It is important that the [Ukrainian] authorities boost their efforts to entrench fiscal and financial stability, decisively enhance transparency and the rule of law, and reform the large and inefficient state-owned enterprise sector," IMF mission chief for Ukraine Ron van Rooden said in a statement.

Due credit

But credit(s) also where credit is due: "Ukraine has made considerable progress in restoring macroeconomic stability over the past year under difficult circumstances," van Rooden added, stressing the need now for "steadfast implementation of structural and institutional reforms" to turn the recent recovery into strong and sustainable growth.

Earlier in May, the fund said it saw "very encouraging" signs coming from Prime Minister Volodymyr Groysman's government since it was appointed on April 14. But before any of the frozen cash moves again, the government must ensure the passage through the turbulent Verkhovna Rada parliament of 19 IMF-required bills.

The decision to delay the second review of the EFF until July probably allows for difficulties achieving this, given the slim majority the ruling coalition has mustered in the Rada, notes Tim Ash, head of emerging market strategy at Nomura International. "I think there is recognition that the Groysman government only has a situational majority in the Rada and it might still be challenging to get all the legislation on the statute book by end of June as had earlier been indicated as a time frame for completion of the review. The IMF is being realistic herein."

However, "Statements by [Groysman] indicate that state authorities are determined to meet the requirements to get this wire", believes the Concorde Capital brokerage in Kyiv.

New Minister of Finance Oleksandr Danylyuk described the talks with the IMF's mission as "difficult but constructive negotiations".

"We've shown the government team is strong and focuses on reforms," the minister wrote on his Facebook page. "We are reliable partners for organisations that support us on the way of changes."

Pot and kettle?

Meanwhile, questions over Danylyuk's alleged involvement in offshore business are gathering weight in Kyiv. According to local media and some politicians, the minister controls three offshore companies and did not declare them until he was appointed to the post, which may mean he violated legislation on untruthful information in his earnings declaration for 2015.

Earlier in May, Ukraine's main anti-corruption body, the National Anti-Corruption Bureau, refused to open an investigation against Danylyuk, who was appointed with the rest of the new cabinet on April 14 to replace US-born finance minister Natalie Jaresko.

The leader of Ukraine's Radical Party, Oleh Liashko, slammed the bureau's inaction as an attempt "to cover up for corrupt officials who rob Ukrainians". The party "demands an investigation in parliament for the corrupt acts committed in the highest Ukrainian government posts", Liashko wrote on Facebook. He and members of his faction then arrived at the Rada with camp beds, promising to sleep there while forcing the creation of a special parliamentary commission to probe offshore schemes.

Under pressure to act, Groysman said he will look into the allegations against his finance minister further. "If there is a violation of the law, an appropriate decision should be taken," Groysman said in an interview with Ukrainskaia Pravda online newspaper on May 16.

Earlier, in the wake of the Panama Papers revelations, Danylyuk rejected any wrongdoing, insisting that from 2010 he was not engaged in any commercial activities. "I have no offshore companies. You simply will not find them," Danylyuk said during his appointment for the post of minister, triggering caustic comments in local media.

While the discussion unfolds, the minister remains rigid on his stance on Ukraine's endemic corruption. "You cannot tackle corruption overnight. This is a systemic problem, so it needs to be also tackle systemically," Danylyuk told bne IntelliNews said during his country's recent presentation at an EBRD conference in London. "This work is underway, it is happening. Institutions are in place and they will start delivering in the next couple of months – you will see some important cases. I am very optimistic about it, as without tackling corruption there will be no Ukraine."

Final note

IMF and corruption palpitations aside, the week brought a swell of national pride as Ukraine won the 2016 Eurovision song contest with Jamala's emotive and politically charged "1944". Ostensibly about the brutal deportation of ethnic Tatars from Crimea in World War II, the song also echoes anguish at the occupied status of the peninsular today after it was annexed by Russia in 2014.

The Eurovision euphoria may still end on a bum note though: Citing the great cost of hosting the contest in Ukraine in 2017 (varyingly estimated at $16mn-40mn), Danylyuk suggested that the event might be passed to another country. Which could by implication mean ecstatic runner-up Australia, but almost certainly not fuming third-place holder Russia.