Ukrainian government’s dilemma: how to retain IMF aid without fighting corruption
A few days ago, a letter was published which the International Monetary Fund addressed to the Presidential Administration’s head, Ihor Rainin. Later, another letter to the Ukrainian authorities was published, his time written by the World Bank. Both assert that the draft law on the High Anti-Corruption Court, submitted to the Verkhovna Rada by President Poroshenko, is not consistent with Kyiv’s commitments laid down in the Memorandum of Cooperation between the IMF and Ukraine. It is also claimed that the bill does not comply with the recommendations of the Venice Commission.
The main argument is that the adoption of such a law will not contribute to strengthening the fight against corruption in Ukraine, since the bill does not ensure the HACC’s independence, while the proposed procedure for judges’ selection allows the authorities to gain full control of the process (this may entail the appointment of judges who will follow instructions of the authorities instead of being independent). Therefore, it is quite rigidly stated that Ukraine may not receive the next tranches from the IMF, and the World Bank clearly indicates that Ukraine may also lose $800 million of loan guarantees, which the WB was expected to provide shortly.
Thus, we are seeing a conflict between the IMF and Ukrainian authorities going public.
It should be recalled that both the IMF and World Bank are not simply international financial institutions. These are organizations that express the so-called collective will of the West, primarily the United States. The U.S. dominates the IMF and has the right to veto its decisions. It is no coincidence that the IFIs’ position was publicly supported by U.S. Ambassador to Ukraine Marie L. Yovanovitch in a recent interview with one of the Ukrainian publications.
Thus, we are seeing a conflict between the IMF and Ukrainian authorities going public
According to its charter, the IMF, of course, should not be engaged in building anti-corruption systems in the countries that it lends. But since the Fund makes decisions to extend its loans, it can use a number of requirements to ensure such extensions to pressure these countries to force them to pursue a policy that the IMF considers necessary.
Putting pressure on Ukraine today is a really timely step. As we know, the program of cooperation between Ukraine and the IMF is on the verge of failure. Last year, Ukraine managed to get only $1 billion from the IMF. At the same time, Kyiv paid the Fund $1.3 on its debt. The negative trade balance is increasing, as is the pressure on the hryvnia, which has started to fall. So Ukraine desperately needs this IMF money.
Ukraine has not fulfilled a number of other conditions under the Extended Fund Facility. In particular, it failed to raise gas prices for the population, which had to be done as early as the fall of 2017. Also, the farmland market has not been created. Instead, the Verkhovna Rada prolonged the moratorium on its sale for yet another year, and the president signed the law instead of vetoing it.
But most of all, international organizations and the West are concerned that Ukraine reforms are not moving forward, while the level of corruption is not decreasing – it’s even growing. They now have fears over the fate of their money. They understand that it is impossible to keep giving loans forever just to see them being wasted and stolen, as the probability increases that these loans will never be paid off. The Ukrainian authorities, in turn, are bound by obligations to the West to create a system of bodies to combat corruption. And due to the established tradition, the authorities also seek to control everything, including courts and anti-corruption bodies.
Ukraine has not fulfilled a number of other conditions under the Extended Fund Facility. In particular, it failed to raise gas prices for the population, which had to be done as early as the fall of 2017. Also, the farmland market has not been created
This seems to have worked out with the National Agency for Prevention of Corruption (NAPC), which, according to the statements by some of its senior officials, is loyal to the authorities and basically coordinates with them the potential targets of their anti-graft probes.
At the same time, the government "burned its fingers" on the National Anti-corruption Bureau of Ukraine. This was a real blunder as the bureau turned out to be mostly beyond their control, launching real investigations against high profile officials and politicians without any approvals "from higher offices". Plus, very limited is the external control over the Special Anti-corruption Prosecutor's Office. This is why conflicts surfaced between the NABU and the Prosecutor General's Office, between the NABU and the Ministry of Internal Affairs, between the PGO and SAPO, etc. Further escalation ensued amid public statements by the leaders of said anti-corruption bodies complaining of pressure from above.
These conflicts as such sharply undermine Ukraine's reputation.
On the other hand, creating an independent Anti-Corruption Court would complete the chain of the anti-corruption system. After all, no matter what the NABU does, if its cases are forwarded into courts dependent on the authorities, they see no logical end. Generally speaking, today’s courts don’t throw anyone behind bars. But if the Anti-Corruption Court is created, then, regardless of who is in power, actual verdicts could start being handed down.
Either we need to do everything that the West tells us to, thus agreeing that we have actually lost our sovereignty and that Ukraine has fallen under external control and that through tranches, credit programs and recommendations it is being controlled from beyond
Ukrainian authorities remember perfectly well what the setting up of a similar anti-corruption system, lobbied by the West, led to in a number of Eastern European countries. The most striking example is Romania, where the brother of former Romanian President Mircea Basescu was imprisoned as well as a former Prime Minister Adrian Nastase (it’s during his time in office when the anti-corruption directorate was established). Besides, two party leaders were jailed as well as 11 ministers, 39 deputies, 14 senators, and hundreds of smaller-scale officials and judges. Of course, the Ukrainian authorities don’t want to have the story repeat itself in Ukraine and experience this anti-corruption spree personally.
That is why today Ukraine is facing quite an interesting choice.
Either we need to do everything that the West tells us to, thus agreeing that we have actually lost our sovereignty and that Ukraine has fallen under external control and that through tranches, credit programs and recommendations it is being controlled from beyond, and very much risk the future of its "political elite", or we need to resist and not comply with the demands coming from the West. This will mean being deprived of additional funding in the conditions when Ukraine has already largely destroyed its economy. Then it a default becomes possible as well as a sharp drop of the hryvnia, a price spike, and corresponding social problems. And, again, this may end badly for the government.
Or maybe the country needs to look for other ways out. For example, some governments in other countries became more authoritarian, shifted to dictatorial regimes, trying to retain power by force.
In general, all of these options are bad for Ukraine. I think that great efforts will now be made to somehow get to terms with the U.S. and other Western countries on continued lending and other support without Kyiv meeting all the conditions that are required to combat corruption and implement reforms.
Today, Ukraine is facing quite an interesting choice
The strong argument of the Ukrainian government may be that the fight against Russia is more important for the West than the fight against corruption in Ukraine. And that the willingness of the current Ukrainian government to take part in this fight in the most active way should be taken into account.
However, it is hardly possible to convince the West that Western interests are more important for the West than Western values. For the West, it is easier to bet on another team, the one that will ensure Western interests and respect Western values.
Viktor Suslov is a former minister of economy of Ukraine