Ukraine is mak­ing progress

The Washington Times Daily - - WORLD - BY TODD WOOD

Cor­rup­tion is the big­gest threat to Ukraine’s in­de­pen­dence and sur­vival as a free coun­try, even more so than Russian troops in Don­bass. For if cor­rup­tion is al­lowed to win the day, as it al­ways has, then Ukraine does not have a fu­ture, no mat­ter how well it deals with the sit­u­a­tion in the east.

Kiev made a big move this week to­ward a pros­per­ous ex­is­tence for its peo­ple, as the gov­ern­ment res­cued the coun­try’s largest bank, Pri­vatBank, in a move that is sure to anger the powerful oli­garchs who have looted the bank’s bal­ance sheet for years. The bank had a cur­rent capital short­fall of al­most $6 bil­lion as most of the loan ac­tiv­ity had gone to the bank’s share­hold­ers.

The grip­ping cor­rup­tion that has stran­gled Ukraine since its in­de­pen­dence from the Soviet Union has been a thorn in the side of fur­ther aid from the In­ter­na­tional Mon­e­tary Fund. Tak­ing over the largest bank in the coun­try and as­sur­ing its de­pos­i­tors will be made whole will go a long way to help­ing the IMF loosen its purse strings for more money to flow to Kiev, which is des­per­ately needed.

“We are sure that mov­ing the bank into state own­er­ship is the only pos­si­ble way to save the money of the bank’s clients and to save the fi­nan­cial sys­tem,” said the Ukrainian Cen­tral Bank.

The real ques­tion will be who pays for the sweet­heart deals that have been given to the share­hold­ers. Will they be re­quired to eat some of the losses? Or will the Ukrainian pub­lic be re­quired to shoul­der the bur­den? This ques­tion seems to be up in the air.

Res­o­lu­tion of loss ac­count­abil­ity will pro­vide trans­parency into the power strug­gle be­tween oli­garch Ihor Kolo­moisky and Ukrainian Pres­i­dent Petro Poroshenko. The bank was a ve­hi­cle for Mr. Kolo­moisky to fi­nance his many business in­ter­ests in the coun­try.

Mr. Poroshenko also will have to con­tend with op­po­si­tion and pro-Rus­sia forces us­ing the bank na­tion­al­iza­tion to pres­sure the gov­ern­ment and ac­cuse Mr. Poroshenko of wast­ing tax­payer money. There have been mul­ti­ple bank res­cues in the coun­try at the be­hest of the IMF, and the pub­lic has ex­pe­ri­enced fi­nan­cial pain as the smoth­er­ing cor­rup­tion is dealt with one sacred cow at a time.

For their part, multi­na­tional in­sti­tu­tions like the Euro­pean Bank for Re­con­struc­tion and Devel­op­ment have ex­pressed sup­port for the bank takeover and have hinted at pos­si­ble capital in­jec­tions into Pri­vatBank if the process goes smoothly.

All in all, the pri­va­ti­za­tion was done quickly with gov­ern­ment as­sur­ances that the equity own­ers and bond­hold­ers will suf­fer pain in the re­cap­i­tal­iza­tion. The Ukrainian Cen­tral Bank has said the bank will be sold back to the pub­lic once the in­sti­tu­tion is healthy.

If these as­sur­ances are met, then put a chalk mark in the win column for Mr. Poroshenko and his gov­ern­ment. With fur­ther as­sis­tance that is sure to come from the IMF and the West af­ter this high-pro­file ac­tion, Ukraine should keep push­ing for­ward to make progress on root­ing out cor­rup­tion that per­me­ates the econ­omy.

With IMF chief Chris­tine La­garde be­ing con­victed on cor­rup­tion charges this week and Italy’s banks tee­ter­ing on fail­ure years af­ter the Euro­pean bank cri­sis started, per­haps Europe can learn from its pupil. Ukraine may be get­ting the mes­sage that Pres­i­dent-elect Don­ald Trump will not be hand­ing over good money af­ter bad.

Per­haps this is a move to im­press the new Amer­i­can leader that Ukraine is se­ri­ous about fix­ing its own prob­lems so Ukraine can con­tinue to re­ceive sup­port against Russian power in the east.

One could make the ar­gu­ment that Mr. Poroshenko’s ag­gres­sive ac­tion to pri­va­tize Pri­vatBank is an­other con­se­quence of the Trump elec­tion even be­fore he is sworn into of­fice.

L. Todd Wood is a for­mer spe­cial oper­a­tions heli­copter pi­lot and Wall Street debt trader, and has con­trib­uted to Fox Business, The Moscow Times, Na­tional Re­view, the New York Post and many other pub­li­ca­tions. He can be reached through his web­site, LTod­

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