Ukraine's Poroshenko "will not allow anybody to dictate something" to Kyiv during talks with IMF

Ukraine's Poroshenko
IMF Managing Director Christine Lagarde and Ukraine president Petro Poroshenko, who won't let the the IMF dictate policy to Ukraine as an independent state.
By bne IntelliNews March 1, 2018

Ukraine’s relation to its main donor, the International Monetary Fund (IMF), should be based on “joint compromise agreements,” President Petro Poroshenko said, at his first press conference in almost a year on February 28, adding he will not allow anybody to dictate policy to Kyiv.

"As the president of an independent state, I will not allow anybody to dictate something to us, all this is a matter of compromise," he said, underlining that he is not involved in the negotiations with the IMF, but he has regular meetings with the Fund's Managing Director Christine Lagarde and her deputy David Lipton.

The statement appeared against a background of the IMF's growing pressures on Kyiv to make more progress with reforms, by insisting on the expeditious consideration of the legislation to create an independent anti-corruption court in the country.

"It is now important that the authorities move expeditiously with parliamentary consideration of the draft law on the anticorruption court, while ensuring that the necessary amendments are adopted during the parliamentary process to make the approved law fully consistent with [the Fund's $17.5bn] programme commitments and the recommendations of the Venice Commission of the Council of Europe," the IMF said in a statement on February 19.

The multinational lender seeks also further progress on other delayed measures that are necessary to achieve programme objectives, including in the energy sector and with regard to fiscal policy, according to the statement.

The issue of passing a law that sets the basis for a truly independent ACC is becoming a deal-breaker, according to analysts with the donor’s digging their heels in over the issue. But the government is being equally stubborn in refusing to give the court fully autonomous powers as some sort of connection to corruption taints almost everyone in government.

“[The ACC] is an existential threat to them,” Tim Ash, head of strategy at Bluebay Asset Management said in a recent note.

In January, the IMF sent a letter to the Ukrainian leadership in which the lender expressed "serious concerns" about the bill, as several provisions are not consistent with the authorities’ commitments under a $17.5bn support programme agreed with Kyiv in 2015, and the recommendations of the Venice Commission of the Council of Europe.

The IMF said that the bill opens up opportunities for additional delays in establishing the court. According to the multinational lender, the establishment and operation of the court is a key pillar of Ukraine’s anti-corruption agenda; however, in its current form the IMF said it would not be able to support the bill.

Specifically, the bill lacks the transparent appointment of competent and trustworthy anti-corruption judges. International organisations and donors should be able to recommend members for a public council of international experts, whose roles should be “crucial”, not “just advisory” in judges’ selection, the IMF letter read.

Rejected compromise

On February 28, Poroshenko said that he personally appealed to the country's parliament, the Varkhovna Rada, with regard to the bill on the anti-corruption court. "The parliament can make any changes there during preparation for the second reading [of the bill]," the president said.

In other words, Poroshenko another one time confirmed that he is not ready to discuss any amendments to a bill on the nation’s anti-corruption court submitted by him to the country’s parliament in December, despite bitter criticism from the IMF.

"Right after the first reading, there will be time to improve the draft in order to make this institution work as effectively as possible and in compliance with the Ukrainian constitution, Ukrainian sovereignty and Ukrainian legislation," Poroshenko said in an address to heads of diplomatic representations of foreign states and international organisations accredited in Ukraine on January 16.

Central bank's head intrigue

The IMF is also demanding Kyiv appoint a new governor of the National Bank of Ukraine (NBU) to replace the outgoing governor Valeria Gontareva.

"We welcomed the president's nominating a candidate for the position of NBU's governor, and we look forward to the parliament coming to a decision on this nomination soon," IMF Resident Representative in Ukraine Goesta Ljungman told Interfax news agency on February 28, on the eve of expected lawmakers vote for the dismissal of Gontareva and the appointment of Yakiv Smolii instead of her.

The statement followed recent announcement made by the Verkhovna Rada's speaker Andriy Parubiy that the parliament may vote to approve the appointment of a new governor of the regulator on March 1.

In January, the Verkhovna Rada failed to consider Gontareva's resignation and the appointment of Smolii, the acting head of NBU, as a candidate for the post. Ukrainian President Petro Poroshenko nominated Smolii as a candidate for the post of the governor on January 18, who previously served as Gontareva's deputy and is well-liked by international investors as he is seen as a competent pair of hands.

On January 19, the NBU's media office published Gontarev's photo with the central bank's headquarters in downtown Kyiv in the background. "This is the photo response to the reproaches of some politicians that Gontareva is outside Ukraine," the media office wrote in a statement. "Today she expected an opportunity to make a report in the Verkhovna Rada and visited the NBU."

Who is Smolii?

Gontareva, who is a close business associate of President Petro Poroshenko, has led the central bank since June 2014. She stepped down from the post on May 10, although some analysts have speculated that she was pushed out of the job following her attack on oligarch-controlled banks. In December, the NBU nationalised the country’s largest commercial lender Privatbank, which belongs to oligarchs Ihor Kolomoisky and Hennadiy Bogolyubov.

Smolii, 57, was born in Ukraine's Ternopil region. The banker holds PhD degree in economics. He was appointed to the post of the NBU's acting governor in May 2017, following Gontareva's resignation. Since October, 2016 he was the regulator's first deputy governor, since April, 2014 (the start of financial, economic and military crises in Ukraine) deputy governor.

In 2006- 2014, Smolii worked in private sector as a director at Ukrainian company the Prestige-Group; in 2005-2006 was a consultant at companies Office Stolychnyi and Prestige-Group.

"While Smolii might not have been the preferred initial choice for the position to replace Gontareva - I think back in April 2017, Oleksandr Lavrenchuk, chairman of Raiffeisen Bank Aval, was universally seen as the most technically qualified person for the job - I think he has done a stellar job in running the NBU in an acting capacity," Ash said in an appeal to Ukrainian elites on February 28.

"He [Smolii] has had a hugely difficult job, lacking the authority which comes with affirmation as governor in a permanent status, and still having to manage difficult challenges such as fighting inflation and managing still considerable problems in the banking sector," Ash added. "But he has performed well in the job, and the fact that Ukrainian markets have performed smoothly during this period is I think testimony to his skills in the job."

Smolii has declared UAH15.2mn of income for 2017. The official's wage in the NBU amounted to UAH2.3mn; dividends from AMC Etalon Asset Management around UAH5.45mn; interest on accounts in Ukreximbank around UAH4.85mn, according to Interfax news agency.

According to the declaration, Smolii has bank accounts in Ukreximbank of $3.93mn; Ukrsibbank of UAH105,000; Raiffeisen Bank Aval of $4,455 and UAH105,000; in Delta Bank that went bankrupt in 2015 of around UAH6mn; as well as in Oschadbank of UAH254,000.

The official also the co-owner of 12 offices, which repeatedly triggered accusations of alleged conflict of interests in local media.