Posts Tagged ‘IMF’

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Privat nationalisation and political weight loss

December 19, 2016

Ukraine has eventually taken the decision to nationalise Ihor Kolomoisky’s (and others) Privat Bank.

In some ways it is a surprise that the will to do so was actually found, despite that for more than 2 years everybody and anybody with any knowledge of Privat Bank has hardly been shy in opining that it presented serious risk to the Ukrainian economy and had it not been systemically vital to the Ukrainian banking system it would otherwise have been closed.

To a man/woman, of those spoken to one to one by the blog, be they politicians, economists, diplomats or international bankers, all recognised that the Privat problem had to be addressed and that nationalising it was the better of the options available – if the will could be found to do so.

Lo it has come to pass that 100% of Privat shares are now owned by the State.

How grubby the deal struck between Ihor Kolomoisky and The State is, remains unknown.  For a man like Ihor Kolomoisky to “voluntarily”  “sell” his shares to the State in what has been a significant political and financial lever over the State for him for many years with no gains to him pushes the boundaries of belief.  With the ability to simply put the Ukrainian banking sector into melt down, there is presumably a quid pro quo no matter how small yet favourable that may be in return for the “voluntary” handing over of all shares.

So be it.

Questions will undoubtedly be asked regarding the large amount of PrivatBank loans to its owners (Mr Kolomoisky and friends), other companies with the same owners, and to those associated with the owners, that have consistently been taken out with no intention of repaying them.

What is the exact cash figure these nefarious loans amount to?  What are the chances of those loans now being serviced and eventually repaid by those that took them and who are extremely skilled at historically saddling the State with their debts?

On balance, should a reader accept that those loans will probably not be repaid, thus in assuming these non-performing loans (debts) in however many $ billion they amount to, is that still a price worth paying to insure that PrivatBank can no longer collapse the entire Ukrainian banking system?

Even if agreements have been reached to now begin to repay these loans, the question is then over what period of time (in the unlikely event they will be repaid in full and in the spirit of any agreements made)?

The question presented is therefore one of short term (debt assumption leading probable loses when loans are not repaid) verses the medium/longer term view of what price is put upon insuring the entire national banking system will not collapse due to Prvat?

Financial issues aside, there is of course politics to consider.

The last time the nationalisation of Privat was mentioned by the blog in September, the politics were “Tymoshenko orientated”.  Mrs Tymoshenko is not in favour of the nationalisation of Privat as it doesn’t really work to her advantage.

Ms Tymoshenko aside, broader questions need now be asked about how the nationalisation of Privat changes the political and/or oligarch power dynamics with a major Kolomoisky lever now surrendered.

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Mr Kolomoisky can no longer use Privat as a personal piggy bank.  How does it change his ability to buy parliamentary votes for hire and/or buy entire political parties?  Will it effect any future voting outcomes?  To mitigate, will key voting personnel previously simply bought, now start to appear in Kolomoisky business structures instead for the purpose of leverage over their vote?

In short, just how much political weight loss has been incurred by Mr Kolomoisky – if any?

Without the “ace up the sleeve” of a persistent ability to cause national banking melt down, how does that effect the Kolomoisky position when negotiating how next to screw the State?

How will the rest of the oligarchy class react?  Will they make peace with the State or solidify around a common cause yet further in screwing it over?

How will this effect a poor presidential poll rating if he is perceived to have engineered the right thing for the country, or alternatively is perceived as having used his position to weaken yet another oligarch to his own advantage?  The two are not mutually exclusive, but that is how it will be presented.

Can Mr Kolomoisky now be certain that in what appears prima facie to be a weakened position, he will now not be called to account for innumerable scams and schemes over the years?  Was a de facto arrangement made that in effect grants amnesty via a promise of non-prosecution as part of the deal?  Are there other “compensatory” arrangements reached that will filter into the system over time that will be beneficial to Mr Kolomoisky’s other interests?

The repercussions of this nationalisation financially are on balance likely to be beneficial for Ukraine and the least worst option that could have been taken.  As long as Privat is managed prudently henceforth over the medium term this act is the most sensible option available.  In the long term, it would be wise to eventually return Privat to the private sector – once its systemic and internal risks have been mitigated against.

What is far less clear are the political and oligarchy/power behind the curtain repercussions.  It may be some time before those become fully evident.

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The IMF says “No” to Ukraine – as long predicted it would

December 1, 2016

The IMF in very plain words has refused Ukraine the next allocated tranche of $1.3 billion.  The February $2 billion tranche naturally gets kicked further into the future.

This should come as no surprise whatsoever.

In February, April, June and most recently (and at length) in October, the blog has repeatedly written (and stated at closed door forums) that IMF cooperation would be indefinitely suspended due to the fact that Ukraine would no longer be desperate for the money and therefore the motivation of parliamentarians and implementing institutions alike would simply disappear – until such time as the situation becomes so acute that they are once again forced to act.

“…….meeting the November 2016 and the $1.3 billion IMF tranche requirements appears optimistic, then meeting the obligations for the scheduled February 2017 tranche of $2 billion is perhaps as remote as riding a unicorn naked through the centre of Kyiv without once being snapped by a smartphone.”

A told you so statement – and the long list of issues in the above-linked October entry remain to be solved as do the repercussions it outlines.

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Though the above entry makes forecast of 2017 IMF related issues, it wisely steers clear of any prophecy regarding a return by Ukrainian to its obligations under the IMF agreement – and thus a return to IMF funding.

It is thus time to be foolish and/or reckless and forecast just how long it will before before the Ukrainian situation becomes once again so dire that parliamentarians and implementing institutions are forced to put their ingrained fecklessness to one side and act with the integrity expected of them – but of which they are consistently absent unless truly without any other options.

Short of something akin to force majeure coming from either The Kremlin or Washington DC dramatically changing the environment within which Ukraine finds itself, there is no urgency to address Ukrainian obligations to the IMF in 2017.

(The only other “incentive” would perhaps be the “Firtashisation” – or privately conveyed possibilities thereof – to powerful and influential Ukrainian figures that nefariously control Verkhovna Rada votes and who have “strayed” within the laws of European nations.)

Certainly nothing approaching obligation compliance will begin before Spring 2017 – the constituency will first be allowed to emerge from a winter under radically increased utility pricing and the application of soothing subsidies – which lends to the ability of the current government and majority coalition to survive the increasingly cacophonous noise relating to early Verkhovna Rada elections.

Realistically (in the current environment) it seems highly unlikely that Ukraine will make any great strides toward getting the IMF agreements back on track until Autumn 2017 at the earliest – if at all in 2017.

Thus predictions for the IMF-Ukraine lending agreement to recommence?

Perhaps 2018.

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Populist political guns aim at Gontareva (and the NBU)

October 17, 2016

With Ukraine no longer being dependent upon the IMF, and with international debts to be serviced more than manageable in 2017, it is perhaps no surprise that the current head of the National Bank of Ukraine (NBU) is now a legitimate political target when it comes to taking a scalp from the President.

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Thus, during the week 6 – 10 October at a meeting of the IMF and World Bank in Washington DC, a brochure was circulated with the clear intention of undermining Ms Gontareva as head of the National Bank of Ukraine.

Behind the brochure sits Sergei Taruta – Verkhovna Rada parliamentarian, businessman and oligarch.

To be entirely blunt, having only recently met with senior people within these institutions in Ukraine, if the intention was to undermine Ms Gontareva (and/or the NBU policies) then it was sure to find little if any traction at the meeting of these international institutional lenders.

Whilst neither institution support specific politicians or institutional appointees (like Ms Gontareva), instead supporting State institutions and internal processes, quite clearly both fully recognise what they consider to be very positive change within the NBU under her leadership.  It seems unlikely that there would be any private conversation that would encourage her removal from office until the changes she has brought are far more consolidated and (perhaps) irreversible.

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It is therefore difficult to believe that Sergei Taruta could seriously expect that a brochure clearly designed to undermine the head of the NBU would find traction among the IMF and WB elite in Washington DC.

If he did then he has a truly woeful understanding of the relationship between the current NBU management and that of the IMF and WB in Ukraine.

Needless to say, the brochure brought with it no result at the IMF and WB gathering in DC that was in any way helpful for Mr Taruta – perhaps the opposite.

Nevertheless on 14th October Mr Taruta decided to pursue to resignation of Ms Gontareva through the machinery of the Verkhovna Rada, declaring on his intentions on his Facebook page together with accusations of incompetence and corruption.

That same day the NBU website questioned the allegations, the framing of his claims, and the motivations of Mr Taruta.  Indeed the NBU requested that such machinations be scrutinised by the Ukrainian law enforcement entities.

A reader will now rightly note the true audience – that of the Ukrainian constituency.

Not to be left on the periphery, on 17th October, the ever populist Yulia Tymoshenko pushed Batkivshchyna to the fore as a rallying point for Verkhovna Rada Deputies to coalesce around to force the removal of Ms Gontareva.  Ms Tymoshenko’s main charge being that Ms Gontareva is in charge of the destruction of the State at the behest of President Poroshenko.

Her secondary charge, and clearly she has noted the real reason for Sergei Taruta’s attack on the NBU, was that the free-floating (more or less) of the Ukrainian currency has caused all those with foreign currency loans to struggle and/or default as the currency weakened significantly when finding its true market value.

Thus Mr Taruta’s attempt to attract struggling SME’s and entrepreneurs to the Taruta political sphere is now duly challenged by Ms Tymoshenko’s act – whilst both simultaneously attempt to remove a presidential appointed (Verkhovna Rada approved) scalp who is now fair play having completed many of the most unpopular IMF reforms.

Perhaps Ms Gontaerva is incompetent and/or corrupt as Mr Taruta claims.  Perhaps she is President Poroshenko’s tool for the destruction of the State as Ms Tymoshenko orates.  If so however, neither Ms Tymoshenko nor Mr Taruta have the moral high ground nor are particularly concerned about it considering the company they keep and the activities of those within their orbit – both business and political.

It is far more likely that they both simply see the IMF as now expendable and thus Ms Gontareva as no longer essential/untouchable – and therefore she is nothing more than a possible scalp for a populist “win”.

If they managed to remove her, would State policy change?  Probably not.

 

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The gathering reform storm of 2017 – Ukraine

October 6, 2016

Many Ukrainian eyes are focused on 2017 and what external events will mean for the nation.

How will US policy change when a new president sits in the Oval Office?  What of the elections in France and Germany?  How much of a distraction will BREXIT be when it is eventually triggered?

All good questions – and as stated a few days ago “….. unless the Ukrainian leadership really start making strides (rather than tip-toe) with real and effective reforms US patience will expire sometime in 2017, just as the European patience will.  Real support will ultimately be reduced to little more than that surrounding territorial integrity and sovereignty.”

That statement fails to include Ukraine meeting its obligations to international institutions.  There are agreements with the IMF, World Bank, EIB and EBRD that will either be met – or broken.  This in turn will have a major impact upon FDI if (or possibly when) these agreements go unfulfilled.

To keep a watchful eye upon the external, currently” friendly” influences that will effect Ukraine in 2017 is understandable, but there are some extremely prickly and difficult issues internally that have the ability to magnify or reduce the thus far (surprisingly robust) goodwill of the international community (minus Russia) which seem destined to once again radically and negatively effect Ukrainian standing among its “friends”.

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In short there is a reform (or distinct lack of) storm brewing that is going to hit Ukraine in early 2017 and which when it does, the feckless domestic politicians will be once again at its core.  The issues are vividly clear, yet as normal, preparation, professionalism and policy are entirely absent.

Before looking at 2017 however, 2016 has yet to run its reform course.  The next tranche of IMF money, about $1.3 billion, is due in November.  For this tranche to be forthcoming there are but a few obligations to meet.

Clearly insuring reform progression thus far does not reverse is necessary.  The irreversibility of what has been done thus far is highly questionable.  What reforms, if any, can be claimed as being irreversible and consolidated?  Some may be close, but which are truly over the line?  The NBU has done a very good job, but a change of leadership and/or policy could undo almost all that has been done.  NABU is under direct assault by the PGO and Attorney General.  The new national police for the most part is refusing to buckle to corruption despite the police service remaining only half reformed and far from ethical as an institution.  The military are now a capable fighting force, yet its leadership remains poor and con tinuing corruption is as corrosive as the war of exhaustion with Russia in the occupied east.

Nevertheless, aside from holding the reform line that has be advanced thus far,  to meet the requirements for the next IMF tranche NABU should be given the right to wire tapping.  The list of SOEs for privatisation in 2017 completed (notwithstanding the November 2016 second attempt to sell Odessa Port Side – and the equally robust attempts to prevent its sale by vested interests.)  The e-declarations of politicians and relevant public office holders are to be filed in their entirety.  A “fair” budget for 2017 is to have been submitted.

All this to be accomplished by the end of this month so the IMF can give a timely nod of approval for November’s $1.3 billion.

Thus far, “fair” or otherwise, the budget has been submitted for consultation within the Verkhovna Rada.  The outcome of those consultations and the guaranteed subsequent amendments remain to be assessed by the IMF.  The budget however, is possibly the least problematic of the IMF requirements.

An independent NABU logically should not require the SBU to carry out wiretaps on its behalf.  The more people that know that “Mr X” is subject to a wiretap, the more chance there is that “Mr X” will find out.  Having to use a third party brings with it an unnecessary potential for leaks and/or tip-offs.  It should therefore not require stating that a nefarious elite and feckless parliament do not want a self-sufficient NABU that is far more difficult to infiltrate, influence or preempt.

The e-declaration fiasco remains just that.  The  declaration system still fails to meet the legislative framework requirements.  The e-declaration legislation itself also requires some amendment – just not the amendments to remove criminal liability that so many politicians want to see.

The sheer scale of opposition to the e-declaration reform is naked to the observing eye when considering it took EU conditionality to get the e-declaration law passed initially, and then months later it requires IMF  conditionality to actually get e-declarations completed by those who are required to do so (by the end of October).

At the time of writing about 1600 e-declarations have been submitted.  Of those only one of that number is of a parliamentarian (Mikhail Gavriluk).  None of the other 400+ MPs have yet filed.  Not a single member of the Cabinet has either.  About a dozen of the 300 NABU detectives have filed, and only two of the four NAPC members charged with policing e-declarations have done so.  Even if all e-declarations are submitted by the end of October, as stated long ago, court challenges are inevitable when the system still fails to meet the legislative framework it operates within.

In March the blog forecast that by the autumn Ukraine would not need external financing (although it would continue to accept it gratefully), but that it should nevertheless earnestly complete its obligations for reasons of external confidence in the nation’s governance.  Naturally the usual issues of fecklessness loom large, for when it is clear to the political class that there is no impending and immediate fiscal doom, the will to complete prickly reform legislation evaporates – which is where Ukraine finds itself today.

Reform orientated legislation has more or less stopped and requires resuscitation.  In fact it requires steroids if Ukraine is to meets its reform obligations to the IMF (let alone others) for 2017.

There are issues with compiling a list of SOEs ready for privatisation, liquidisation or remaining State owned.  There are at least 20 outstanding audits from those commissioned.

If the next few weeks in meeting the November 2016 and the $1.3 billion IMF tranche requirements appears optimistic, then meeting the obligations for the scheduled February 2017 tranche of $2 billion is perhaps as remote as riding a unicorn naked through the centre of Kyiv without once being snapped by a smartphone.

Despite the reform orientated legislative work completed in the energy sphere, the Ukrainian energy market remains entirely impenetrable, thus looking to 2017 the privatisation of Centrenergo is perhaps the only realistic chance of breaking into this market if it be sold to a foreign investor.  As such, the sale of Odessa Port Side in November has to be seen as a fair and transparent process by all onlookers.

Whatever the case, there is no way the list of SOEs for privatising, liquidisation or remaining State owned will be completed (and made publicly accessible upon the Ministry of Economic Development) by the year end.  Even if the only list of those SOEs identified for liquidisation is completed by then, there is simply little interest within the Verkhovna Rada to kill off such entities.  Gathering 226 votes for an exercise where none have any interests close to the New Year break is somewhat unlikely.  Auditors will not be rushed either.

Likewise “supervisory boards” such as that Naftogaz currently has (and which seems to be working well) for another 10 major SOEs is very unlikely to be achieved prior to 2017 as planned.  There is really no political will to do it – and a good deal of vested interests that will obstruct it.

Thus this reform requirement will roll over into 2017.

Fecklessness, lobbying/nefarious acts, and legislative short-comings aside – now to ever-present populism.

There two obligatory reforms by year end 2016 that seem simply beyond reach, will thus roll over into 2017, and yet are still unlikely to get through the Verkhovna Rada to facilitate the $2 billion February IMF tranche – thus finally breaking the IMF agreement and dealing a critical blow to “friendly” transatlantic assistance beyond issues of Ukrainian sovereignty and territorial integrity.

The first is the long-standing issue of pension reform that almost every government has stated it will tackle – but hasn’t.  Pensions from the age of 50 are simply unsustainable, and to be blunt most people continue to work way past being 50 because the pensions do not sustain them.

It is a policy that has to be addressed, but one that when push comes to shove, and despite a decade of rhetoric regarding the necessity of raising the pension age, every Ukrainian leadership succumbs to populism.

Nevertheless it simply has to be raised.

It is foolish to believe that any attempt to raise it significantly in one go will ever get through the Verkhovna Rada.  A system, for example, of raising the retirement age by 1 year every 2 years over 20 years (or a variation therefore) may stand a chance – however slim.  A system of greater contributions equating to greater pensions may also find some traction – but enough?  The populists however (Ms Tymoshenko, Mr Lyashko etc) will always seize upon pension reform for short term politicking and pre-election electioneering rather than looking at long-term policy necessities.

There are also existing process issues relating to checking the authenticity of claimants – something aggravated by the large number of internally displaced people.

Most difficult of all however, is the issue of land reform.  Ukraine has obligated itself to creating legislation regarding agricultural land reform by the end of October 2016.  That simply is not going to happen.  As of the time of writing the blog cannot even find a draft law registered regarding the issue.

It may be that the IMF will allow this sensitive/populist issue to roll over into 2017 and allocate the November 2016 tranche if all other conditions are met.  It will not issue the $2 billion tranche in February 2017 without this issue being tackled however.

Ms Tymoshenko is already noisily calling for the current moratorium upon the sale of agricultural land to be extended to 2022.  The Radicals being equally as populist will enthusiastically support her.

The sly oligarchy or slightly less mega-rich will look to provide/create agri-loan businesses with formidable foreclosure clauses to assume agricultural land of those farmers they lend to should the sale of agricultural land be permitted.  Huge ranges of State land will be swiftly leased through cronyism prior to any right to buy.  The farmers must be given more time to save the capital to buy the land they current lease and farm.  All such reasons will be presented not to create an agricultural land market.  Those farmers that do own their land will be tricked out of it by the unscrupulous, or simply coerced into selling it for a pittance – by continuing to stop them being able to sell the land they currently own, we are saving them from themselves (rather than infringing upon their rights to sell their own property).

There will be some societal “buy in” for some of that rhetoric, but that rhetoric can perhaps be employed to create safeguards within any laws creating a land market – if anybody actually drafts a law to create a land market that will be fair, regulated, and if necessary contain legislative restraints.  (Perhaps Ms Tymoshenko would like to draft a law that explains how a land market will be created after her 2022 moratorium expires?)

If it proves simply impossible (as is likely) to find the political will not only to lift the current moratorium but also prevent its extension, then perhaps legislation creating a fair land leasing market  is an alternative?

If the land cannot be bought and sold in a (regulated) free market environment, then create a transparent free market where leases for the land can be.  Some imagination might be required, but there is surely some way to create a land market that brings about transparent and fair benefits to all and around which Ukraine and its “friends” can agree as constituting positive market driven reform.

Although it is possible to continue with examples that are going to lead to a reform storm in 2017, it is perhaps unnecessary insofar as highlighting how swiftly matters are going to come to a head and when a probable breach of IMF conditionality occurs – with undoubted repercussions with a newly installed US Administration and immediately prior to both French and German electioneering.

Indeed it may also become the catalyst for the long anticipated early Verhovna Rada elections in Ukraine (which are unlikely to bring about a reformist critical mass as current election laws stand).

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A note to regular readers – For the next few days your author will be in Poland locked behind closed doors with a dozen sages and otherwise insightful boffins from across the region.  Although undoubtedly returning far wiser, the normal rambling and low-brow blog entries will continue upon return.

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Tymoshenko and the IMF – or is it really about the IMF?

September 21, 2016

Yulia Tymoshenko knows a thing or two about dealing with the IMF.  She has said so herself on several occasions when recently cricitising first former Prime Minister Yatseniuk, and latterly the current Prime Minister, Volodymr Groisman.

Indeed when Prime Minister she negotiated a deal with the IMF, the conditions to which she agreed she then reneged upon when required to implement them – which may make a reader wonder just how skilled at negotiation with the IMF she really is.  (If one instance of poor negotiation is not enough, then a reader may reference the gas deal she struck with The Kremlin resulting in the worst gas deal with Russia in Ukrainian history, (despite the welcome removal (visible) of intermediaries), is also worth pondering.)

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Ms Tymoshenko apparently knows what the current IMF conditions are according to a report by Interfax – “Among Ukraine’s obligations are the cancellation of the moratorium on the sale of agricultural land.  If the moratorium is not prolonged, Ukraine will lose its main resource.

She claimed that the IMF also planned to “virtually introduce external control over national, state Ukrainian banks.”  as well as seeking commitments to reduce the network of Ukrainian educational institutions.

So far, so standard regarding IMF conditionality just as the hiking of utility prices has long been a standard IMF demand – and the demand that she balked at when it was her turn to implement the IMF agreement she agreed that also included utility hikes.

The IMF has been fairly consistent with its requirements with every Ukrainian government that has negotiated with it – from gas pricing, to the funding of vast number of universities within the nation, to lifting the moratorium on the sale of agricultural land, there is really nothing new in her “revelations”.

Indeed the only thing new about the IMF demands this time is that both Prime Minister’s Yatseniuk and Groisman have more or less honoured the obligations they have entered into – unlike Ms Tymoshenko when it was her time to do so.

What catches the eye is this statement – “The nationalization of large Ukrainian private banks is foreseen. We want to know what the bank is, what the date of nationalization is and who will be responsible for the obligations the banks have to Ukrainians”.

Clearly she is referring to Ihor Kolomoisky’s Privat Bank.  A bank which is structurally critical to the current operation of the Ukrainian banking system, but that is otherwise bankrupt and has been for years.  This situation too, is no secret to anybody.

Indeed the nationalisation of Privat is unlikely to create too many issues for Ihor Kolomoisky given its otherwise bankrupt status.  He may well realise that if he can get rid of it now, it will save some severe and problematic issues in the not too distant future.  (The health of Ukrainian Airways (MAU) another Kolomoisky company is worthy of a look too for those interested in the Kolomoisky empire.)

Privat Bank, its condition and structural importance would of course raise flags for the IMF when considering the robustness of the Ukrainian banking system.

The question Ms Tymoshenko is really asking is what, if anything, Ihor Kolomoiskhy gets out of the deal on his side, and what the current leadership get (themselves) if the State nationalises Privat Bank removing this impending problem for Ihor Kolomoisky and also easing concerns within the IMF?

Do Mr Kolomoisky (and partners) retain any minority shares?  What about the high value loans heavily biased to other Kolomoisky companies and their ability to repay them – or not?  Are profitable bits of Privat (card payment infrastructure etc) to be split off, and if so who will own them and reap the rewards?  Who would be the negotiator with Ihor Kolomoisky if not President Poroshenko, the only person Mr Kolomoisky would negotiate with?

What reward does President Poroshenko personally desire from any such negotiations that ultimately remove a problem for Mr Kolomoisky?

The answer to that, if strong and repeated rumour be true, is a majority share in Mr Kolomoisky’s top rated TV station 1+1.

The President has one eye on his woeful popularity figures, and another eye on Presidential elections in just over 2 years time.  A 1+1 favourable editorial line toward President Poroshenko would be gratefully received and the only way to insure it with a sly character like Mr Kolomoisky is to own the majority share of 1+1.

1+1 together with the President’s Channel 5, and perhaps the fairly amenable (read rentable/for hire) Vadim Rabinovich and Evgen Muraev with NewsOne, will form a fairly solid national TV media platform from which to launch a presidential campaign for a second term – notwithstanding the administrative ability to throw a few policy sweeteners to the constituency and a few fairly big fish into the judicial frying pan if and when necessary – all with the timeliness associated to pre-election electioneering rather than official electioneering.

If this be the case, how does President Poroshenko buy a majority share in 1+1 when his business activities are now supposed to be run through a blind trust?  Is the trust blind in only one eye?  Will a trusted third party do the 1+1 (plausibly deniable) honours on behalf of President Poroshenko?

Will Mr Kolomoisky accept President Poroshenko saving him from serious banking problems/liabilities at the expense of control over the influential 1+1?  It is a question, according to rumour, that is still being pondered.

With Inter (if it is still operating and belonging to Dmitry Firtash) being an Opposition Block TV platform, the question in Ms Tymoshenko’s head perhaps is not what happens to Privat, but undoubtedly being aware of the persistent rumours surrounding the deals around what happens to Privat, is where she will find a national media platform that could compete.

Unless Ms Tymoshenko is entirely deaf to rumours circulating within her workplace, she already has a good idea of the answers to all the other questions – as do a lot of other people.

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E-Declaration or E-Legalisation – Something of a shambles

August 15, 2016

The 15th August witnessed Ukraine launch its e-declaration system which obliges senior officials to declare their assets – a significant attempt at transparency for those atop the cesspit of the Ukrainian State holding public positions.

Despite much doubt that it would be launched on 15th August as national legislation required, launched it was – but not without problems.

The system has been launched on time – but without certification (Special Connection Service Certificate) regarding its integral robustness and ability to protect the personal data it will hold (and it will surely be a magnet for hackers) – despite a legislative requirement to do so.

At best, it can perhaps be seen as (and the Ukrainian leadership will want it to be seen as) Ukraine complying politically with the obligations it has made to the IMF and the software financing donors – but technically, and perhaps morally, deliberately creating loopholes and non-compliance issues – at least in the short term before such matters are rectified.

It should be noted that the National Agency for the Prevention of Corruption (NAPC) was not keen to launch the system without it first having received the required certification by law.  Nevertheless both President Poroshenko and Prime Minister Groisman made it very clear that they expected the launch on 15th August – without excuses.

Non Compliance grunge rubber stamp on white background, vector illustration

This raises questions as the system is not fully compliant with national legislation – nor for that matter State obligations more generally when it comes to data protection within any regional and international instruments to which it may be a party.

It therefore follows that there will be legal issues when obliging those at the very top to adhere to a law and e-declaration system that is in itself, not entirely compliant with the law that created it, nor other overlapping legislation.

How long it will take the system developers (Miranda) to eliminate the deficiencies within the programme and subsequently receive certification fully legitimising the system remains entirely unclear.  The cynical and skeptical will naturally err toward “just long enough”, for there are clearly legal advantages to the odious, the criminal, and the nefarious elites to submit their e-declarations now – before matters are put squarely within the law and wiggle room/exploitation room is therefore removed.

It may be argued, and probably will be in a court, that the criminal liability for any fraudulent entries is null and void when forced to comply with a submission requirement on a system that is not all that national legislation states is has to be.

Alternatively, now making a full disclosure of all nefariously and criminally obtained assets previously hidden in years past whilst now almost certainly being able to avoid criminal responsibility in any e-declaration, can be seen as a possible method of legalising previous criminality or precariously dubious activity prior to the system developers putting the technicalities right that would then close loopholes and bring criminal liability to e-declarations.

Even quality legislation is not retrospective, so the chances of this deliberately created mess being straightened out and applied retroactively to any submissions made prior to the necessary system corrections are slim to say the least – non-existent to be blunt.

In short, now is perhaps a deliberately manufactured window to come clean in an e-declaration whilst there is in effect an e-declaration amnesty pending full system legislative compliance.

How this shambles will then effect agencies such as NABU and other anti-corruption bodies is also unclear – but ramifications can be expected.

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Ukraine and the IMF – Where are we at?

July 15, 2016

Firstly a disclaimer.  Despite suffering several years of economics lectures during one of the degrees held by this blog, and therefore having been exposed to some level of economic theory, it was dull.  It was a labour to gain the credits at a high enough level as not to adversely effect the overall outcome of the Degree grade.  Compared to other subject matter within that degree curriculum economics was the most tedious – albeit not the most intellectually difficult to grasp.

(Surprisingly all the economic attachés since met and spoken with, none have been dull or have resulted in laboured discussion.  Perhaps the lack of intellectual stimulation was therefore due to the (now long-since retired) lecturer in question.  Perhaps not, perhaps it really is dull.)

Whatever the case, the following entry is written with those in mind who find economics less than stimulating.  In fact it relates less to economics and more to politics, policy, and official obligations undertaken – with a little bit of economics.

The (most recent and on-going) IMF programme with Ukraine witnessed a suspension of tranches due to the political turmoil surrounding the lead up to, and subsequent departure of Arseniy Yatseniuk as Prime Minister.  The installation of Prime Minister Groisman and a new Cabinet may or may not have calmed the political seas from an IMF point of view.  We will soon see if the programme restarts very soon.

Much will depend upon how the IMF see the chances of future survival for PM Groisman and Cabinet vis a vis calls from various parts of the political spectrum for early Verkhovna Rada elections – for there are agreement obligations to deliver.  It is no coincidence that PM Groisman has begun a public political offensive against the populists – and in particular against Ms Tymoshenko who repeatedly claims she “knows how to negotiate with the IMF, she’s done it before“.

Indeed she has – below is a document outlining her agreement with the IMF in 2008:

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The document shows that with respect to ending subsidies, depoliticising rates calculations, unifying prices of domestically produced and imported gas (which forces out the nefarious schemes), and protecting the socially vulnerable groups, Ms Tymoshenko agreed to carry out the exact same policy as PM Groisman and current Cabinet are doing now regarding energy and utilities pricing – except Ms Tymoshenko broke the agreement when it came time to implement her promises and after having received some of the IMF funding.

As is always the case with Ms Tymoshenko, be you a Ukrainian politician or an international partner, it is foolish (beyond naive) to expect Ms Tymoshenko to honour her obligations.

A reader may ponder whether the issue of Ms Tymoshenko’s gas deal with Mr Putin, which agreed what was probably the highest ever price for gas in Ukrainian history, will also – chapter and verse – be used against her current populist nonsense in the coming months.  It’s not as though such documented ammunition is unavailable or forgotten about.

Indeed Mr Groisman may yet take a deliberate path of fulfilling many of Ms Tymoshenko’s old political statements/promises that she herself failed to do.  A “she talked it years ago (here’s the proof) – I walked it today because she never did” tactic.

However, recent IMF history aside, whether or not the next, delayed, IMF tranche to Ukraine under the current agreement will appear any time soon remains unknown.

Much legislative time was lost during the eviction of Mr Yatseniuk and installation of Mr Groisman.  Some IMF required legislation has passed per the existing agreement – although not all – and the Verkhovna Rada from 15th July to 6th September is now effectively on legislative holiday.

It is anticipated that on or about 25th July the IMF will make a decision to deliver the next tranche to Ukraine – or not.

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In early April this year, at the Odessa Security Conference, a Deputy Finance Minster was present.  During a chat it became clear that this Deputy Minister did not expect all such IMF required legislation to be passed swiftly – not solely due to the situation then surrounding the position of PM, but also owing to the fact that Ukraine was in a far better position than expected at that time (and still is).  With reserves that could last 3 or 4 months and slowly rising, there would be insufficient desire among the parliamentarians to fulfill their obligations until those reserves started to be burned through absent the IMF funding.

In summary, no rush with IMF required legislation due to the attitudes and culture of Ukrainian parliamentarians – one of manyana/just in time/just enough.  Prophetic this Deputy Minister has proven to be – not all obligations within the agreement have been met yet, and probably in part due to the reasoning of this Deputy Minister.

Has the Ukrainian parliament done enough to continue to enjoy the confidence of the IMF?  Probably, but not definitely.

If it has failed to do enough it is not a catastrophe for Ukraine given its current situation, but it is certainly not good either – and for reasons that have little to do with the national balance sheet.

The current, albeit small economic bounce having hit the bottom of the economic pit is not yet over – although the question of maintaining the upward trajectory throughout 2017 and beyond remains large.  Agricultural and IT sectors seem likely to be the drivers for export growth and also the most attractive sectors for FDI.  Other primarily export sectors are at the whim of the global commodities market, which is not exactly overflowing with demand.

The problem with not achieving a return to IMF lending is one of confidence – both internally of Ukraine and also that of those considering investing in Ukraine.

Internally of Ukraine the IMF tranche immediately reduces “safety net” concerns fiscally – which also has a psychological effect upon the domestic constituency.

Externally regarding FDI, it probably would have little effect upon the major, slowly unrolling, investments by Japan, China, US, UK etc that have already begun.  However the IMF matters when it comes to decisions by other institutions such as the World Bank or the EBRD.  Their actions in turn influence those still considering Ukraine but have not yet made a decision.  No return by the IMF will be interpreted as Ukraine failing (once again) to fulfill its obligations with a major international institution.

Ergo, should the IMF decide Ukraine has done too little, without a dramatic, almost force majeure change in current circumstance, fiscal and economic collapse will not immediately follow, perhaps delayed for as long as 6 months or more – giving the Ukrainian parliamentarians a fairly leisurely timeline to correct their manyana attitude toward their responsibilities that allow Ukraine to meet its national obligations.

The same cannot be said when it comes to the perception of trust and the willingness to meet actively all obligations entered into – for that timeline is a real time timeline for a nation like Ukraine which has “trust/confidence credits” that are only as good as the last commitment and/or obligation it  has met.

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