IMF warns Ukraine over presidential anti-corruption court bill

IMF warns Ukraine over presidential anti-corruption court bill
Ukrainian President Petro Poroshenko
By bne IntelliNews January 16, 2018

Ukraine's main donor, the International Monetary Fund (IMF), has openly criticised the Ukrainian government, saying the draft law on setting up the long-awaited anti-corruption court is not compliant with its demands, putting further funding by the donor in doubt.

The bill on the nation's anti-corruption court was submitted to the country's parliament by the Ukrainian President Petro Poroshenko over the Christmas holidays. The bill has become an acid test of Kyiv’s commitment to seeing through reforms. The IMF has become increasingly explicit in its criticism of the government’s failure to carry out key reforms and linked compliance with its demands on the establishment of the court to its $17.5bn IMF-supported programme.

"The submission by the president of the draft law on the anti-corruption court was expected to be a positive step in this direction," IMF mission chief in Ukraine Ron van Rooden wrote in a letter to the head of Poroshenko's administration, which was quoted by the Yevropeiska Pravda online publication on January 15.

At the same time, the multinational lender has "serious concerns" about the draft law, as several provisions are not consistent with the authorities' commitments under Ukraine's IMF-supported programme and the recommendations of the Venice Commission of the Council of Europe.

Kyiv has backtracked on several crucial reforms in recent months. Earlier, Ukraine and the IMF failed to agree a new price-setting formula for domestic gas tariffs, which is another crucial condition for the continuation of existing funding from the $17.5bn bailout agreed with the IMF in 2015. The greenlighting of pension reform and creation of a specialised anti-corruption court are among other steps that are necessary for further IMF funding.

Poroshenko submitted the bill to the parliament, the Verkhovna Rada, in December. According to the presidential media office, the bill "takes into account the recommendations of OSCE experts and the conclusions of the Venice Commission". However, Ukrainian civil society activists pointed out that the bill does not take into account the Vienna Commission recommendations and the OSCE was not even consulted in drawing up the draft law.

Meanwhile, the IMF in its letter said that the bill opens opportunities for additional delays in establishing the court. According to the lender, the establishment and operation of the court is a key pillar of Ukraine's anti-corruption agenda, however in its current form the fund "would not be able to support the bill”.

Specifically, the bill lacks transparent appointment of competent and trustworthy anti-corruption judges. International organisations and donors should be able to recommend members for public council of international experts whose roles should be "crucial", not "just advisory", in judges’ selection, the letter reads. In effect the international donors want to take over the job of vetting judges as they don't trust the government to appoint impartial judges.

The requirement for court candidates to have considerable anti-corruption experience in foreign jurisdiction bodies or international court institutions severely limits the internal pool of candidates; and a ban on officials who served in law enforcement or as prosecutors in the last 10 years should be removed, the IMF believes.

In a response to the IMF's criticism published the same day, Poroshenko's administration said that the bill on the anti-corruption court has been drafted in accordance with the constitution of Ukraine and the recommendations of the Vienna Commission, and discussions on specific norms should be held in the Ukrainian parliament.

"Today, the draft law is in the Verkhovna Rada, therefore all discussions on special norms should be held within the legal framework in the Ukrainian parliament," Interfax news agency quoted a statement released by the administration.

"Head in sand from Poroshenko – he obviously does not think Ukraine needs cheap IMF financing," Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, said in a note to clients on January 16. "In the end the basic question to ask is if Poroshenko, and the majority in the Rada, is serious about fighting corruption or not."

Zenon Zawada at Kyiv-based brokerage Concorde Capital expects "a long process" of getting the final draft approved, which will have to be some kind of a compromise between IMF demands and the goals of Ukraine’s ruling elite.

"We expect the legislation to create the court will be approved in the coming months," Zawada wrote in a research note on January 16. "Poroshenko’s failure to do so will be a valuable argument for his rivals in the presidential elections, scheduled for March 2019. More importantly, it's a key requirement to secure the next IMF loan tranche this year, which is vital for Ukraine."

Last year Ukraine only received one tranche of $1.5bn from the IMF programme when it was expecting to receive some $5bn in total. The last tranche of $1bn was delayed from December due to slow progress on reforms to the first quarter of this year, but even the distribution of that tranche is now in doubt.