IMF, World Bank, and EU Support Corruption in Ukraine

"If billions were not stolen from the national budget every year, Kiev would not need a Euro loan."

Kiev. AP photo
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The International Monetary Fund, World Bank, and European Union support the corrupt system in Ukraine with billions in credits. Only in exceptional cases does the money drive important reforms. [Published December 20 in Germany]
 Florian Hassel, in Süddeutsche Zeitung
It has been two years since the Ukrainian Minister of Finance had to nationalize the country’s largest bank. The Privat Bank, which belonged to the oligarchs Igor Kolomoisky and Gennadi Boholyubov, had been bankrupted by massive lending to insiders and other questionable maneuvers.

The Treasury Secretary had to pay $ 5.5 billion in tax credits to save the bank, well over a tenth of the state budget. The now state-owned Privat Bank is trying to recoup at least part of the money and has sued the former owners. Not in Kiev, but in London. The reason: The bank fears that they have no chance with local judges against oligarchs just as rich as they are politically influential.

The action of the state bankers is as remarkable as well-founded. Corrupt or politically-controlled officials are at the very top the very top of the state – including police and intelligence agents, prosecutors and judges – a fact which is also by far the biggest obstacle for the economy, as recently confirmed by the World Bank or National Bank surveys of entrepreneurs. If billions were not stolen from the national budget every year, Kiev would not need a Euro loan.

Nevertheless, Kiev’s international lenders, led by the International Monetary Fund (IMF), World Bank, and EU, have just granted Ukraine another billion credits. Washington and Brussels are supporting a corrupt system in Kiev because they believe that they have no choice in the geopolitical struggle against the expansionist Russia.

Lending should actually help to implement or accelerate reforms. Loans should help to implement or accelerate reforms. This has only been achieved in Ukraine in exceptional cases: the state gas company Naftogaz has been reformed, as has the banking sector; the price of gas for private households, which has so far been massively subsidized, has just been increased.

In general, however, the billions from Washington and Brussels have bought President Petro Poroshenko and his allies time to do nothing or even sabotage reforms. Neither land reform nor the privatization of loss-making state enterprises has begun. Customs and tax services are still politically controlled, notoriously corrupt self-service shops. The same applies to the army and to the domestic intelligence service SBU, which reports to Poroshenko and often puts pressure on entrepreneurs.

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Certainly, before the IMF transfers a loan tranche, certain reform laws must be passed. But the reform approaches of the Western donors from the outset do not go far enough. In addition, the passing of laws is one thing, their implementation quite another. Reforms were and are often imitated in Ukraine. Anti-corruption authorities are formed, but controlled by the presidential apparatus or sabotaged by politically controlled or corrupt prosecutors and judges. A nominally anti-corruption Special Prosecutor is discredited, but may remain in office.

Although the Supreme Court is being re-staffed, after the selection, also controlled by the presidential apparatus, there are again dozens of corrupt or otherwise discredited judges.

Ukraine urgently needs foreign investment to catch up with its economic and technological backlog. But investors see corruption and dysfunctional justice – and prefer to go to Poland. At the end of communism, Poland and Ukraine were on a par. Today, the Ukrainian minimum wage is only 130 euros, while Poles earn at least three or four times this amount. Hundreds of thousands of Ukrainians commute to Poland – and soon, when the Immigration Act comes into force on January 1, they will proceed on to Germany to earn money. In their own country, ordinary Ukrainians often can’t make ends meet. By contrast, according to economist Olexander Honcharov, the wealth of the 100 richest Ukrainians has grown 12 times faster than the economy. The 100 richest Ukrainians, some of whom have built their wealth in a short time with often dubious maneuvers, control assets of $ 37.5 billion – that’s half of the national debt. But no oligarch, no high-ranking official, has ended up in prison in Poroshenko’s presidency for corruption or dubious business. No wonder: Poroshenko is one of the oligarchs.

Certainly, Kiev’s financiers are not blind. For example, the IMF froze loan disbursements in the summer of 2017 due to a lack of reforms – but only temporarily. After several years of delay by Poroshenko, Parliament recently decided to set up an anti-corruption court. But the selection of judges, led by a discredited Ukrainian body, has not gone much better than the discredited Supreme Court.

Nevertheless, the IMF, the EU, and the World Bank have now turned on the money – and repeated their old sin. If Poroshenko remains in office after the presidential election in March 2019, he will have little reason to change his line. And if former Prime Minister Yulia Tymoshenko replaces Poroshenko, she too, should not see any reason to agree to reforms that would finally break the corruption that is strangling Ukraine, given the lack of consistency of Western lenders.

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