Skip to main content
На сайті проводяться технічні роботи. Вибачте за незручності.

IMF to Study How Ukraine Has Been Spending its Loans

08 February, 00:00

(Continued from Title page)

It is not often The Financial Times, one of the most influential Western financial publications, carries articles for several days in a row on country that, according to Western standards, “is not at all interesting.” Yet, precisely this happened the week before last. As you might have guessed, the articles were on Ukraine.

In its Saturday issue, Den (No. 15) already quoted the January 28 issue of The Financial Times (FT). Recall that it printed accusations that IMF loans were being “misappropriated” made by former Premier Pavlo Lazarenko against the current President. However, these accusations are only a small, by and large politically colored, part of the whole story into which Ukraine was drawn. And since this story is likely to continue, our readers will perhaps be interested both in the implications and the prehistory of the scandal that flared up. Let us start with prehistory.


We can neither confirm nor deny Mr. Lazarenko’s allegations that, as FT writes, in December 1997 $613 million in IMF funds were diverted from the National Bank and invested in speculative government bonds. We will only try, on the basis of indirect evidence, to ascertain what kind of abuse the Ukrainian authorities have been capable of committing since 1997.

According to IMF spokesman Tom Dawson (FT of January 29), “The fund had not been aware of the details of the allegations (by Mr. Lazarenko — Author) until they appeared in The Financial Times on Friday,” so “the International Monetary Fund will carefully examine the allegations” and contact the Ukrainian authorities for explanations. Hence, what the Ukrainian authorities call a premeditated provocation (the FT publications — Ed.) is obviously a provocation only to some extent.

As to the essence of the allegations, the facts are as follows. There was no “misappropriation” found following the official NBU audit in 1997, but... According to unofficial information, when an IMF mission was on a regular visit to Kyiv, the authorities were accused of “misleading the fund.” At that time, the IMF experts found that information on the NBU currency reserves was distorted (embellished): on the declared value of the NBU foreign currency reserves, which did not correspond to what it really had. The point is that the National Bank’s hard-currency reserves is one of the most important indicators from which to judge the health of the state’s entire financial system. Since the poor state of a country’s balance of payments and the paucity of hard-currency reserves is almost the only condition for gaining IMF aid, all operations with such reserves are subject to tough regulations and IMF control.

Readers who follow financial news published in newspapers could, of course, learn nothing about the “routine conflict” between the IMF and its Ukrainian partners. But they are sure to remember some instances of NBU-bashing, first on the initiative of Security Service enthusiasts and then of some People’s Deputies. It is at that moment that Verkhovna Rada’s investigating commission headed by Viktor Suslov found a $66-million “shortage” and accused, for the first time, the NBU of embezzlement on the basis of “direct evidence.” More than a year later, the FT again raised the question of misrepresentation. Now the figure is $62 million, but this does not matter. What was it then?

The results of the parliamentary inquiry, which stimulated the activity of IMF auditors, emerged as soon as in a couple of months. It is following the IMF “recalculations” that the Ukrainian public was shocked to learn in the first days of 1999 that National Bank hard currency reserves had dwindled by several hundred million dollars. But the NBU hastened to calm us down: the reserves had not dwindled but had only been a little underrated.

This disgraceful story with the National Bank could have ended there if a similar scandal had not erupted simultaneously in neighboring Russia, where the media also aired information on hard currency misappropriation in the Russian Central Bank. Let us note that the Ukrainian media covered the Russian scandal rather superficially primarily because the NBU managed to convince public opinion that it had nothing to do with any kind of machinations with government resources.

Everything was worse in Russia at the moment. At first, the international audit found no irregularities in Russian Central Bank (CB) operations. However, the CB was still found in the summer of 1999 to have been operating a crafty scheme of acquiring Russian governmental debentures at the expense of hard-currency reserves (which is strictly prohibited under the credit agreement with the IMF).

Simplified, the scheme looked as follows. The reserve currency was funneled, as a loan collateral, directly by the CB into an offshore subsidiary called FIMACO and recycled into speculative government bonds. Formally, the only objectionable practice was that the “collateral” currency loses its former liquidity, which changes the “value” of the reserves. And this was not duly reported to the IMF. In terms of everyday life, the violation looks negligible, but in terms of international practice it became one of the factors that led to the little-publicized suspension of loans to the Russian Federation. However, it took Russia another scandal to announce in no ambiguous terms the IMF’s true stand.

Before reminding you of the essence of the next financial story, we must note that the details of Russian corruption, revealed in the course of a worldwide public debate, have nothing to do with Ukrainian events only at first glance. In reality, what is now being done both in public and private in Ukraine makes one at least suspicious of nationwide corruption in both countries.

So the second Russian story, still underway, is about laundering the dirty money of the Russian political elite in Western banks. We are not going to dwell upon the chronology of events, the latest of which (the issue of an arrest warrant for Pavel Borodin, the Russian presidential administration’s former business manager — Ed.) was extensively covered in Saturday’s Den. We shall only note that Russian and Ukrainian corruption have almost everything, even consultants, in common. Moreover, it is the Ukrainian President who told the international public, citing the example of the ousted Premier Lazarenko, long before the channels of Russian dirty money had been disclosed, about how and under what schemes the corrupt state officials of all CIS nations export and launder money in the West. In addition, we have every reason to believe that the “venal” West took this information quite seriously and decided to glean, just in case, all the relevant information about all the politicians and businessmen dealing with the government.

Let us sum up the preliminary results and answer the eternal question: “Is there a grain of truth?” No one will perhaps dare give the final answer, but the preliminary one is: “Even if there was not a grain of truth, there might have been.”


The implications of the planned scandal (of which Ukrainian officials of all levels have not the slightest doubt) also make us believe that there is no smoke without fire. Further, there are not so many (to be more exact, two) versions of who may be interested in a torrential chain reaction (FT + IMF) to Mr. Lazarenko’s harmless and habitual charges.

The first is that Western holders of Ukrainian debentures are intentionally trying to discredit the debtor in order to secure for themselves better (but worse for Ukraine) conditions of debt restructuring. Observers (especially those who wanted the debtor to pay everything immediately) were suspicious about a precipitously fast procedure of forming the bank consortium which agreed to organize the replacement of current bonds with longer maturity dates.

Worth noting also is that the consortium includes banks involved in the “lost” reserves story. Incidentally, it was impossible to purchase the government bonds without resorting to the reserves of NBU-friendly Western banks. Does this mean the embittered rivals are plotting against the latter? Quite possibly.

But the friendly banks could also be plotting. This occurred, for example, in the case with Russia. After default was inflicted on the Russian Federation and a moratorium was declared on the official transfer of money as payment of debts, it turned out that Russian banks had been actively siphoning off money, in secret from creditors, into private Western bank accounts. It is logical to assume that the creditors decided not only to stop but also repossess these “displaced assets.” In other words, the media campaign against Russia was planned and organized by international business. Indeed, who wants to hold talks on restructuring with a debtor who supposedly has no money and to suspect, at the same time, that some elements, friendly to the negotiating party, are pocketing the potential means of payment?

The second version is not new, either. The Presidential campaign is in full swing in the US, and catching the Democratic contender, current Vice President Al Gore, red- handed is a normal instrument of the campaign struggle. The loopholes the rivals find is another matter. In this sense, Ukrainian corruption is, like a computer game clue, always at hand. In addition, nobody cares whether or not this clue has anything to do with reality.


Of course, any patriotically-minded state official will be deeply hurt when Ukraine is referred to, rightly or wrongly, as a realm of corruption. I personally am also displeased when my country is associated with corruption. But I am prepared to bear this displeasure in order that all of us get a chance to know who is who. Even if on someone else’s initiative.


President Leonid Kuchma said that Western media allegations about Ukraine misappropriating International Monetary Fund loans is “a provocation aimed at the President of Ukraine, the course of economic reforms, and Ukraine’s cooperation with the IMF.” Mr. Kuchma said this the Saturday before last in Davos, Switzerland, in an interview with Interfax-Ukraine.

The Ukrainian President stressed that allegations of the former Prime Minister Pavlo Lazarenko about funneling IMF funds into the election campaign are “totally absurd.” Mr. Kuchma expressed surprise over the fact that a number of publications in the Western press are exclusively based on the evidence of a person wanted in two countries on charges of corruption, abuse of office, and money laundering.

In connection with the scandal, the National Bank of Ukraine announced that it had concluded on January 28 an agreement with “an internationally recognized” auditing firm to conduct an additional audit of reserve-currency operations in December 1997.

This firm has already begun the audit, with the results to be made public. The press service did not specify the auditing firm’s name as a commercial secret. The IMF is now considering the question of issuing Ukraine the next installment of a three-year loan.


Oleksandr SAVCHENKO, Chairman, Board of Governors, International Commercial Bank:

“As far as I know the situation, these accusations are groundless. In 1997 Ukraine borrowed half the money it requested. I think the falsification of this information will be proved one day. This is overt misinformation without any consequences.”

Serhiy SOBOLIEV, deputy chairman, Reforms and Order Party:

“I think the main consequences will be faced by the US Democratic Party, for this is a direct blow on the prestige of presidential candidate Albert Gore. At the same time, Ukraine is going to face such major consequences as mistrust on the part of all international institutions concerning loans issued to the Ukrainian government or directly under the guarantee of the Ukrainian head of state. Thus, in my opinion, all that can save the situation is a comprehensive audit conducted by well-known companies on the instructions of the international financial institutions rather than the Ukrainian government. Considering that the articles accusing Ukraine came out during the world economic forum in Davos and have been indirectly confirmed by International Monetary Fund governors, we might expect that these publications show a withdrawal of trust in the Ukrainian leadership in such a critical time. This could also impact the referendum, because the latter could be interpreted in the West as an attempt to distract the attention of Ukrainians from the conflicts and accusations by Lazarenko and IMF officials.”

Delimiter 468x90 ad place

Subscribe to the latest news:

Газета "День"