A positive sign that Ukraine is open for legitimate business

The recent announcement by the International Monetary Fund (IMF) of a $5.5 billion loan to Ukraine demonstrates some faith that Ukrainian President Volodymyr Zelensky might successfully curb Ukraine’s endemic corruption and usher in a new era of economic reform and growth.

A member of the IMF since 1992, Ukraine is long accustomed to its loan disbursements, which change in size depending on how effectively Ukraine combats corruption. As recently as September, the IMF mission to Ukraine derided Ukraine’s “weak business environment and pervasive corruption.”

With the IMF now expressing some measure of faith in Zelensky’s ability to reform his country, it should serve both as a positive example to the region’s other struggling former Soviet republics of what is possible and as a reminder to Washington of what must be done to build strong, credible democracies in the region. 

The IMF loan agreement was far from a sure thing. IMF officials spent a long time in Ukraine confirming that reforms — especially in the banking sector — were actually being implemented.

Negotiations between Ukraine and the IMF stalled earlier this year over concerns about corruption involving Ukraine’s largest lender, PrivatBank, which was nationalized in 2016 with the IMF’s support. PrivatBank had been plagued with self-dealing while under the control of notorious Ukrainian oligarch Ihor Kolomoysky, who owned 42.5 percent of the bank. Kolomoysky also was a prominent supporter whose television station featured Ukraine’s popular entertainer and soon-to-be president, Volodymyr Zelensky.

In 2016, the brazen corruption at PrivatBank made it a target of Valeria Gontareva, then head of the National Bank of Ukraine (NBU). During her three-year tenure at NBU, Gontareva closed more than 80 banks and nationalized PrivatBank. 

By targeting PrivatBank and, by extension, Kolomoysky, Gontareva became a target herself. Now living in London as a visiting professor, she has been harassed and attacked; her house in Ukraine was burned; a car belonging to her daughter-in-law was torched. Throughout this campaign of intimidation — during which Kolomoysky threatened to bring Gontareva back “on an individual basis,” insinuating a kidnapping — a total of zero arrests have been made. Gontareva has made clear she believes that Kolomoysky is behind the attacks on her family and property.

Kolomoysky has been pushing to be paid upwards of $3 billion for his lost stake in Privatbank. The IMF made clear it would not provide loans to Ukraine if Privatbank were returned to its former owners. In late October, Zelensky said he would not give in to his former boss, Kolomoysky, and “the rumors that I or someone from the presidential office is going to return the bank to its former owners are false.” 

In announcing the new loan, IMF Managing Director Kristalina Georgieva said she and Zelensky agreed that “Ukraine’s economic success depends crucially on strengthening the rule of law, enhancing the integrity of the judiciary, and reducing the role of vested interests in the economy, and that it is paramount to safeguard the gains made in cleaning up the banking system and recover the large costs to the taxpayers from bank resolutions.”

Foreign investors waiting for positive signs that Ukraine is open for legitimate business can be cautiously optimistic.

The IMF loan announcement is a show of support for President Zelensky’s intention to root out Ukraine’s corruption, which weakens Ukraine’s business standing and makes it vulnerable to the Kremlin’s pernicious influence. The IMF decision also is a positive example for Ukraine’s corruption-plagued neighbors, Hungary and Moldova, both of which have been lurching lately toward Russia and its economic cronyism.

In Moldova, in particular, pro-reform politicians such as former Democratic Party of Moldova deputy chairman Vladimir Plahotniuc have been forced into exile. Moldovan President Igor Dodon is tightening his grip on power, threatening reformers and moving closer to Russia, where corruption is the norm.

With reasonable interest rates and lower inflation, Ukraine’s economic outlook is increasingly positive. But the IMF, foreign investors and the international business community will be watching closely whether Zelensky will deliver on promised economic reforms, including a resolution of Privatbank. Hungary and Moldova can learn from the IMF’s clear message: Removing the shackles of corruption and promoting economic freedom deliver the international support that can serve as a powerful force multiplier for business.

Here in the U.S., amid the ongoing partisan scrum over impeachment, U.S. elected leaders would do well to stay focused on holding Zelensky accountable for delivering on the anti-corruption platform he promised during his historic campaign.  

Daniel N. Hoffman is a retired clandestine services officer and former chief of station with the Central Intelligence Agency. His combined 30 years of government service included high-level overseas and domestic positions at the CIA. Follow him on Twitter @DanielHoffmanDC.