Dany­lyuk’s fir­ing leaves fewer re­form­ers in power

Kyiv Post - - National - BY JOSH KOVENSKY [email protected]

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.”

Pri­vatBank scan­dal

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

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