Danylyuk’s firing leaves fewer reformers in power
Fired on June 7 from his job as finance minister since 2016, Oleksandr Danylyuk has lots to say.
“Since my first day in office, I was never thinking about the security of my job.”
And going by the endless series of battles with shady financial interests that Danylyuk engaged in during his two-year tenure, that’s not surprising.
His enemies didn't pull their punches either. From the start, he was falsely accused of having offshore accounts in the Panama Papers scandal. He spent the next two years fighting off phony accusations about undeclared London apartments and falsified chat transcripts alleging sexual harassment.
But Danylyuk has a pugnacious bent. He called for Prosecutor General Yuriy Lutsenko’s resignation for thwarting investigations into the $6 billion bank fraud at PrivatBank under billionaire Igor Kolomoisky — a bill and a bank that taxpayers are now stuck with.
Most explosively — and perhaps most usefully to his enemies — Danylyuk sent a letter in May to the G7 ambassadors claiming that Prime Minister Volodymyr Groysman was sabotaging his attempts to rein in the State Fiscal Service by blocking key appointments to oversee the tax collector.
The G7 letter is said to have infuriated Groysman, who demanded Danylyuk’s departure. But Danylyuk, in an interview at Kyiv’s hip Podil East India Company cafe, said he had no regrets. “Look, that’s a true letter. It describes what’s happening,” Danylyuk said.
More work ahead
As finance minister, Danylyuk pushed to modernize the country’s value-added tax refund system, a longtime boon for graft and coercion. He created a public VAT refund registry, and attempted to build an automatic VAT fraud detector.
The ministry also managed to submit two relatively transparent state budgets to parliament on time. A proposal to implement a threeyear budgeting system failed amid a lack of support from parliament, but Danylyuk was able to funnel more state funds to ministries that he deemed to be undertaking reforms in the public interest.
More controversial was his proposal to set strict spending limits in advance of next year’s elections.
“I think it’s a big relief now for many people that I’m not in the position anymore, that they kind of avoided that,” he said with a grimace.
Other reform efforts focused on tax and customs. After former State Fiscal Service Chief Roman Nasirov was booted from office on graft charges in March 2017, the ministry found itself with more leeway to go after abuses.
But Danylyuk claimed that he was blocked from making serious changes by an incapable judiciary system and by Lutsenko, who failed to investigate wrongdoing in the tax agency.
“I cannot just sit and watch and agree with overall communications that everything is so wonderful, that the State Fiscal Service is reformed, that business is happy — it’s not true,” he said.
Danylyuk claims that the real reason for his dismissal was his refusal to approve a program that would divert scarce funds from the state budget to “social-economic development of the regions.”
The former minister claims that the money is intended to buy votes for members of parliament seeking re-election in certain majoritarian districts.
“If we think about future elections, everybody usually says they have to be free and fair. Well, they’re not ‘free,’” he quipped.
A copy of the Cabinet of Ministers’ June 13 schedule seen by the Kyiv Post showed a resolution on the social-economic payments scheduled under Acting Finance Minister Oksana Markarova, after Danylyuk’s departure.
Markarova will be tasked with protecting accomplishments in VAT refunds and transparent budgeting, while attempting to maintain the ministry’s independence.
“She’s not in an easy position,” Danylyuk said of Markarova’s independence. “If she cannot do it, that will be very scary.”
Cash or crash
Danylyuk was removed at a critical moment for Ukraine’s finances.
The country received the last tranche of its $17.5 billion IMF assistance program in April 2017. The IMF has loaned Ukraine a total of $8.4 billion under the program, which is scheduled to expire in March 2019.
Analysts note that Ukraine has $1.6 billion in loan repayments coming due in September, which would draw down the country’s foreign cash reserves to a dangerously low level. The problem could be slowed by severe austerity policies, but that is an unlikely prospect in advance of the March 2019 elections. Moreover, Ukraine's budget deficit already exceeds the IMF-mandated 2.5 percent.
The former minister argued that an additional IMF tranche would be the key to unlocking foreign capital markets for more eurobond issuances.
“If consultations continue into 2019, there will be no 2019,” he said, implying Ukraine would suffer severe economic turmoil.
However, Ukraine’s commitment to meeting the IMF’s three demands for the next tranche — raising household gas prices to market rates, establishing an independent, specialized anti-corruption court, and reining in the budget deficit, remain in deep doubt.
Danylyuk was fired the same day that parliament passed a bill establishing an anti-corruption court, making it appear as if his position was being traded for the creation of an anti-corruption court.
“It was a very clear message,” Danylyuk said, later calling the relationship between the Ukrainian government and the IMF “a game of nerves.”
“With the anti-corruption court, it is a similar game of nerves,” he said. “And if the law is fully compliant with the IMF, it’s clear who won the game.”
He added that many Ukrainian members of parliament had no idea what they were voting for when the anti-corruption court legislation went up for a vote.
“There was no feedback from the IMF communicated to them,” he said. “It was a trap for many people."
Danylyuk suggested that Groysman lacks the will to raise gas prices, arguing that “politically it’s a killer for him.”
Billionaire oligarch Dmytro Firtash, exiled in Vienna, is accused of earning billions of dollars off of various schemes surrounding the deflated gas prices — money that could have gone to subsidies for struggling Ukrainians.
“If the government had done it a year ago, it would have had some time…to protect people…by now there would be no price arbitrage, no opportunity for corruption,” he said. “Maybe the question of Firtash would have never arisen.”
Danylyuk helped keep the country’s financial system from collapsing once already — during the December 2016 nationalization of PrivatBank.
The lender was facing collapse after an elaborate insider lending scheme by its former owners Kolomoisky and Gennadiy Boholyubov left $6 billion in losses.
The bank’s successful nationalization earned Ukraine an IMF tranche, but also spawned scores of lawsuits around the world.
Under the Finance Ministry’s control, PrivatBank sued its former owners in London, alleging mass embezzlement, leading a court to freeze $2.5 billion in assets of Kolomoisky and Bogolyubov.
In a May interview with Deutsche Welle, Kolomoisky said that his strategy to defeat the London lawsuit consisted in regaining control of PrivatBank via the Ukrainian courts.
“The whole London process would end, since I can’t sue myself,” he said.
Danylyuk, who accused Lutsenko in December of working with Kolomoisky to halt the London litigation, said that such an outcome could only occur if “everyone is helping.”
“It’s a nuclear bomb exploding in the middle of Kyiv destroying all trust in everything, in all government institutions, in all politicians, for years to come,” he said.
Acting Finance Minister Oksana Markarova is a holdover from the tenure of former Finance Minister Natalie Jaresko.
Kyiv politicos have suggested that member of parliament Nina Yuzhanina, close to Poroshenko, is being eyed as a permanent replacement for Danylyuk. She is a former accountant for Poroshenko businesses, the Roshen candy company and Channel 5.
Danylyuk said “clearly not" when asked whether Yuzhanina was a suitable candidate for his old job.
“The minister of finance of a modern country in a modern world needs to have a global understanding,” he said. “It’s not manipulation, it’s not being an accountant for a TV channel, as she used to be — it’s much more complex.”
When asked whether Yuzhanina was spearheading fraud schemes that Danylyuk had fought while in office, he replied that “this is a question for the anti-corruption court,” noting he had "initiated a couple of investigations into people in this circle.”
Former Finance Minister Oleksandr Danylyuk speaks in Kyiv on June 11. Danylyuk argues that he was pushed out the government over his refusal to allow state funds to be siphoned off in exchange for parliamentary votes. (Volodymyr Petrov)
Acting Finance Minister Oksana Markarova