Ukrainian government launches a major de-oligarchisation drive
President Volodymyr Zelenskiy spokesperson Iuliia Mendel posted a blog on the Atlantic Council’s website at the weekend claiming that Ukraine has launched a major de-oligarchisation campaign. But is the campaign for real, as there are conflicting signals coming out of Kyiv, and Zelenskiy’s relations with the oligarchs remain far from clear.
“The rise of Ukraine’s oligarch class dates back to the
early 1990s, when a select few were able to acquire enormous wealth during the
privatisations that followed the collapse of the USSR. This small group of
billionaires then used their personal fortunes to build media empires and
establish networks of influence extending deep into Ukraine’s political
structures, judiciary and state organs. They have remained in this dominant
position ever since,” Mendel said.
“Ukraine’s oligarchic system has proved highly resilient,
outliving numerous governments and coming through the turbulence of two
separate post-Soviet revolutions more or less intact. Each successive drive to
change the system has resulted in innovative new ways to maintain the unfair
advantages and artificial monopolies that form the foundation stones of the
oligarchic economic system. The overwhelming might of the oligarchs has kept
Ukraine trapped in an obsolete and dysfunctional past while preventing the
country from reaching its true potential,” Mendel concluded.
As bne IntelliNews highlighted in a recent op-ed, “The
Oligarch Problem” is probably the major issue facing not only Ukraine, but all
of the countries of the Former Soviet Union (FSU). Only this weekend it was
reported that Georgian oligarch Bidzina Ivanishvili’s son had “ordered”
security forces to question people that had criticised him on social media,
leading commentators to say the Georgian government has been completely captured
by the Ivanishvili family. Russia has its own oligarch problem, but there,
Russian President Vladimir Putin has pushed out the oligarchs that lorded it
under former President Boris Yeltsin and replaced them with stoligarchs –
state-sponsored oligarchs that are personally close to Putin.
In Ukraine one oligarch in particular has caused the most
problems: Ihor Kolomoisky, who is credited with putting Zelenskiy into office
in April 2019 by using his media empire to back him. However, the relationship
between the oligarch and the comedian-turned-politician remains unclear. The
two men knew each other well before the presidential elections and have done
business together. Zelenskiy continues to earn royalties from the broadcasting
of his comedy shows on Kolomoisky TV channels and also from rights sold to
Russian TV stations.
Zelenskiy has also held controversial meetings with
Kolomoisky where they discussed the development of Ukraine’s business, although
few details were released. However, most controversially of all, Kolomoisky is
accused of looting $5.5bn from his bank PrivatBank, which was nationalised in
2016 when former President Petro Poroshenko was in charge. Kolomoisky remained
in exile in Israel for all of Poroshenko’s term in office, but returned as soon
as Zelenskiy was elected. No charges have been brought against Kolomoisky, nor
has any investigation been launched despite very strong evidence showing that
the managers of PrivatBank emptied the deposits accounts of cash, as bne
IntelliNews reported in a cover story in November 2016 “Privat investigations”
that triggered the NBU’s investigation into PrivatBank’s books.
That seems to have changed now.
Zelenskiy’s flip-flops
“Ukrainian officials announced in late February that three
former top managers at the country’s biggest bank, Privatbank, are now suspects
in a $5.5bn fraud case at the heart of Ukraine’s oligarch politics. One of
these suspects was detained while attempting to leave the country. The news
generated considerable international attention and was widely seen as an
indication that the high-profile investigation may finally be gaining
momentum,” Mendel said. “The Privatbank case has long served as a symbol of
oligarch impunity. Progress towards justice would be seen as a major
breakthrough for Ukraine.”
She is not wrong about that. The PrivatBank case being
brought against its former managers is a litmus test, but it raises the
question: why now?
Kolomoisky has been operating with impunity inside Ukraine
and clearly increasingly interfering in domestic politics, specifically trying
to counter International Monetary Fund (IMF) efforts to prevent him from
recapturing his bank and to set up effective anti-corruption mechanisms that
Kolomoisky, and the other oligarchs, use to run their rent-seeking business
empires.
The political novice Zelenskiy appears to swinging in the
wind depending on who is offering to back him. He has put through many
contradictory policy decisions that have both supported the oligarch and have
acted against him.
Last summer Zelenskiy personally sacked the well-respected
central bank governor, Yakiv Smolii, on June 2, who complained of “systemic
political pressure” as the reason for his departure. Kolomoisky had been
attacking the central bank as part of his efforts to regain control over
PrivatBank and National Bank of Ukraine (NBU) staff were threatened and their
houses and cars burnt in arson attacks. The NBU branded attacks on its staff
and former NBU governor Valeriya Gontareva as a “terror” campaign, naming
Kolomoisky as responsible.
More recently, the Rada adopted a draft law that allows the
government to sack the head of the National Anti-Corruption Bureau of Ukraine
(NABU) that is part of a triumvirate set up at the insistence of the IMF to
fight corruption and is entirely outside the government’s control. The draft
bill was submitted to the Rada by the president’s office, according to local
reports.
However, Zelenskiy has also worked against Kolomoisky. When
the so-called anti-Kolomoisky banking law was presented to the Rada last May
that was a prerequisite to get the next desperately needed $2.1bn IMF tranche,
Zelenskiy personally went down to the parliament buildings to lobby deputies to
vote for the law, which was narrowly passed.
The pressure on Kolomoisky is growing. The now state-owned
PrivatBank has brought a number of cases against Kolomoisky in London and
Cyprus, which are making good progress. The courts in London have already
frozen $2bn of Kolomoisky's assets. And the US government has also launched a
Grand Jury money-laundering investigation into Kolomoisky, who used companies
based in Cleveland and other US locations to launder hundreds of millions of
dollars.
Then last week the new Biden administration dropped a
bombshell, by sanctioning Kolomoisky, including asset freezes and travel bans
for him and his family.
It has taken a long time. bne IntelliNews called for
international sanctions to be imposed on Kolomoisky during his very blatant
efforts to scupper the anti-Kolomoisky banking bill, which was not even on the
agenda a year ago. Clearly something has changed.
One interpretations of these recent events is that the Biden
administration has decided to do something about Ukraine and in addition to
identifying Russia as the major problem, it has now decided that The Oligarch
Problem is equally urgent and will do something about that too.
And Ukraine is in trouble. Kolomoisky’s machinations have
led to the suspension of the IMF programme. Amongst the many issues, it appears
that he organised a decision by the Constitutional Court of Ukraine to strike
down the main anti-corruption laws last November, which was anathema to the
IMF. Without the next two tranches of $700mn, left over from last year, and the
$2.2bn due this year, Ukraine will struggle to pay off some $16bn of debt
redemptions due later this year. Zelenskiy doesn't really have a choice. He has
to restart the IMF programme by the summer at the latest.
Confusion reigns
But confusion still reigns.
Despite Mendel’s strong comment, Zelenskiy himself has yet
to criticise Kolomoisky in public.
After Mendel posted a link to her blog on twitter, famous
Urkainian commentator, Swedish economist and a Senior Fellow at the Atlantic
Council Anders Aslund challenged her, saying that Zelenskiy has yet to condemn
Kolomoisky in public.
“Really? Can he name Kolomoisky? To challenge the oligarchs in
general means nothing. That is the reason why everybody says so, but Kolomoisky
is the main problem. Can @ZelenskyyUa says so? Or is he still tied to him? Why
are all these Kolomoisky stooges still his MPs?” Aslund said in a tweet, which
led to a testy exchange.
“Mr.Aslund, I am pretty disappointed you’re so much
influenced by too old disinformation narratives. Hope you’re speaking for
high-quality analytics, not just because of an offence of being fired,” Mendel
fired back.
“What "old disinformation narratives"?! I read all
of @ZelenskyyUa statements. Has he ever said ONE NEGATIVE WORD in public about
Kolomoisky? (We all know what a crook he is.) No. Please give me one piece of
contrary evidence or withdraw your inappropriate tweet!” Aslund replied.
This exchange was made doubly curious by Mendel’s choice to
post her comment on the Atlantic Council’s website. While the Washington-based
think-tank, which offers foreign policy advice to those inside the Beltway, is
famously rabidly anti-Russia and pro-Ukraine, it is also part funded by two of
Ukraine’s biggest oligarchs, Rinat Akhmetov and Viktor Pinchuk, as bne
IntelliNews described in The Oligarch Problem.
While Mendel mentions several other oligarchs, including
gas-scammer Dmytro Firtash and Viktor Medvedchuk, the head of the Political
Council of the Opposition Platform, For Life Party – the first is in Vienna
fighting an extradition to the US where he faces corruption charges and the
latter was recently sanctioned by Zelenskiy – neither Akhmetov or Pinchuk have
been mentioned by the Zelenskiy or included in any way in the new
“de-oligarchisation” of Ukraine. Kolomoisky reportedly controls over 70
deputies in the Rada, but Akhmetov reportedly controls over 100 out of the
425-man body.
That opens up the possibility that the attack on Kolomoisky
is not only due to the need to restart the IMF programme, but also a black ops
sting organised by the other oligarchs against their rivals. A similar thing
happened in Russia at the end of the 1990s when a “Bankers war” broke out and
Russia’s leading oligarchs started taking swipes at each other in the press
they controlled.
At this stage it is impossible to say what is actually going
on, but what remains is that Zelenskiy continues to flip-flop. His main problem
is as a novice in power he has no power base of his own. He relied on
Kolomoisky to put him into office. Then he relied on the overwhelming majority
of his Servant of the People (SOTP) party in the Rada. But now the party is
fragmented and Zelenskiy can no long ram laws through without the co-operation
of the opposition parties, including his nemesis former President Petro
Poroshenko, he is turning to the US for support.
With his popularity in the polls plummeting and two thirds
of the population saying the country is going in the wrong direction, Zelenskiy
badly needs to score some reform victories if he is not going to become a lame
duck president.
Kolomoisky is clearly in trouble as the pressure mounts, but
perhaps it is only temporary, as observers say that the government in Kyiv only
ever make radical reforms when it is faced with a crisis. And Ukraine is facing
a crisis in September when $11bn of debt comes due. But as soon as the IMF pays
out its crisis-averting tranches the government goes back to ignoring the
reform agenda.
As Russia’s former Prime Minister and ambassador to Ukraine
Viktor Chernomyrdin famously said: “We hope for the best, but things turn out
like they always do.”
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