Final version of Ukraine’s banking law agreed with IMF

Final version of Ukraine’s banking law agreed with IMF
Ukraine's government has reportedly won approval of the so called "anti-Kolomoisky" banking law that clears the way for a new IMF programme
By Ben Aris in Berlin March 24, 2020

A final version of Ukraine’s banking law that prevents the state returning a nationalised bank to its former owner has been agreed with the International Monetary Fund (IMF) and should be presented to the Rada in the coming days, reported on March 24.

The law is thought to be the main obstacle preventing the IMF, Ukraine’s biggest donor, from approving a $5.5bn Extended Fund Facility (EFF).

The IMF was insisting on the law after the government showed signs of returning PrivatBank to oligarch Ihor Kolomoisky, its former owner. The bank was nationalised at the end of 2016 after it was discovered that Kolomoisky and his partners had looted the bank, withdrawing 99% of its deposits using fake loans and other scams.

The state had to inject some $5.5bn into the bank to rescue it. Kolomoisky has refused to return any of the money despite being threatened with legal action by the former National Bank of Ukraine (NBU) governor Valeriya Gontareva who was in charge of the NBU at the time.

Since then Gontareva has been the target of a string of attacks and harassment. She was knocked down by a hit and run driver in London, where she now lives, under what British police called “suspicious circumstances”. Gontareva’s house was then burnt down in an arson attack on September 16 last year. Other members of the NBU have likewise been harassed in a series of attacks the NBU has branded as a “terror” campaign and singled Kolomoisky out by name as responsible.

Kolomoisky has brought hundreds of legal cases against the NBU and PrivatBank, which is owned by the state now, in an effort to have the bank returned to him, or at least to force the state to pay him $2bn in compensation. The IMF has insisted that no money whatsoever should be paid to Kolomoisky and has called on the authorities to pursue Kolomoisky and force him to return some of the money stolen from the bank, without result.

In the meantime under the new management PrivatBank has returned to profit and remains the biggest bank in the country.

The new law will clear the way for the long awaited IMF deal that also opens up access to several other lines of finance – both institutional and private.

As bne IntelliNews reported Kyiv is currently in talks with the IMF to increase the money available to the government to $9.5bn by adding an additional $4bn from a recently created Rapid Coronavirus Financing (RFI) facility to help low income countries. However, under the rules of the RFI, money from the fund can only be allocated to Ukraine if it first puts the EFF into place.

NV Business reports it has seen the final copy of the new banking law, "draft law 2571 on banks", which was agreed at the end of last week with the IMF. The document was approved by the cabinet on March 23, NV Business reports.

“This so-called anti-Kolomoisky law is the Fund's primary prior action to be implemented by Ukraine to open a new $5.5bn three-year programme, NV Business reported.

The law is due to be put in front of the Rada shortly and voted into law. The law is expected to face opposition from Rada deputies that are under the control of Kolomoisky, but President Volodymyr Zelenskiy’s Servant of the People (SOTP) party commands a majority in the Rada. The big question is if the comedian-turned-politician will turn on his master and push the law through; Zelenskiy was elected president last April on a tide of popular support, but his campaign was backed by Kolomoisky’s media empire and financial support.

Draft banking law 2571 guarantees the non-return of banks to their former owners if they have been nationalised and lays out the mechanism of compensation for them if a court decision declares the NBU’s nationalisation decision was unlawful.

The law was drafted under the guidance of Justice Minister of Ukraine Denys Malyusky, who also negotiated with the IMF on the issue.

According to NV Business, the cabinet was supposed to approve and submit the draft law to the Rada on Monday, March 20. However, at that time the document had not yet been agreed by the Ministry of Finance or the Ministry of Economic Development. The cabinet was meeting until 1am on Monday night and issued several press releases following the meeting, but didn't mention the conclusion on the draft version of the bank law.

The IMF deal has become imperative for Ukraine as it faces a sharp “stop shock” due to the coronavirus. The country has to repay some $4.1bn in debt this year and the budget deficit of UAH90bn ($3.3bn) is expected to double as a result of the crisis. Yields on Ukraine’s 2028 Eurobonds have already soared by 150bp to 11%, effectively locking the country out of the international debt markets.

Immediately after agreeing the final version of Bill 2571, on March 22, Zelenskiy's office announced that the head of state had a telephone conversation with IMF managing director Kristalina Georgieva, discussing with her the financial and economic situation in Ukraine on the spread of coronavirus.

The sides also touched upon the possible increase in the amount of support from the Fund Ukraine, "during a time of great challenges for the global pandemic economy."

"Ukraine is aware that today it is necessary to act proactively and quickly to minimize the negative impact of the pandemic and its associated restrictions on the economy and well-being of citizens," Zelenskiy said.

"She had a very constructive conversation with President Volodymyr Zelenskiy and expressed our support for Ukraine, as the country is facing huge challenges in connection with the spread of the COVID-19 coronavirus," Georgieva's office said.