Once again, Ukraine is hitting the headlines for all the wrong reasons.
Just when policymakers might reasonably hope to reap the benefits of a recovering economy and ambitious reform agenda, the US impeachment drama has reinforced stereotypes of Russia’s western neighbour as corrupt and chaotic.
To be fair, Ukraine’s reputation for sleaze is well-earned. More than five years after the Maidan revolution – which was, above all, a protest against endemic and crippling corruption – there have been no high-level prosecutions for graft, let alone convictions.
Indeed, at the current rate, there could soon be more people in prison in the US for Ukraine-related corruption than back home.
Similarly, while it would be harsh to single out new Ukrainian president Volodymyr Zelensky for telling Donald Trump what he wants to hear, when most other heads of state are doing the same, his failure to distance himself from notorious local oligarch Ihor Kolomoisky is cause for concern.
Yet focusing on the negatives can make it easy to overlook just how much has been achieved in Ukraine since 2014.
Take the banking sector. At the time of the ousting of former president Viktor Yanukovych, the industry was in a parlous state. From market leader PrivatBank on down, locally owned lenders were mostly pocket banks, serving mainly as cash machines and laundromats for local oligarchs.
Within three years, PrivatBank had been nationalized and more than half of the country’s other 180 lenders closed, either for malpractice or due to lack of capital.
From the outside, and in retrospect, this may seem a straightforward and inevitable process. In practice, it was a high-risk strategy. The owners of the failed and nationalized banks were powerful players, with a long reach in local media and politics.
The reformers were subject to relentless negative press coverage. Far-right protesters delivered a coffin containing a dummy of then central bank governor Valeria Gontareva, who spearheaded the banking clean-up, to her workplace.
Meanwhile, officials likened the PrivatBank nationalization to defusing a bomb, referring to fears that its main shareholder, Kolomoisky, would paralyze its systems rather than hand it over to the state.
Nevertheless, the reformers pressed ahead – and have managed to maintain momentum even after the first flush of enthusiasm for change faded and the fight-back by vested interests began.
Despite intense pressure from its former owners – including a blizzard of law suits, raids on the bank by law enforcement agencies backed by dubious court judgements, and most recently stage-managed protests outside its Dnipro headquarters – PrivatBank’s board and management have continued to push to recoup the $5.5 billion that went missing from the bank pre-nationalization.
Having the support of Ukraine’s international backers has been, and still is, invaluable for the banking reformers
Their efforts were rewarded in October when the Court of Appeal in London ruled that the bank could pursue a $3 billion fraud claim against Kolomoisky and fellow shareholder Gennadiy Bogolyubov in the English courts, setting the stage for an epic legal showdown next year.
The central bank has also franked its reformist credentials. The unwavering continuity of policy after the departure of Gontareva has demonstrated the depth of institutional change, and the fact that reform was not dependent on individuals.
New governor Yakiv Smoliy has also proved a robust defender of former colleagues who have fallen foul of Ukraine’s reactionary forces.
When Gontareva was injured by a hit-and-run driver in London in August, and her family home in Kyiv was torched by arsonists three weeks later, the central bank publicly denounced the incidents as terror attacks designed to intimidate reformers and vowing not to be silenced.
A similar statement in mid-November roundly condemned the arrest of former central bank first deputy governor Oleksandr Pysaruk – now head of Raiffeisen’s Ukrainian subsidiary Bank Aval – by anti-corruption officials for his role in the banking sector clean-up.
Clearly, throughout the process, having the support of Ukraine’s international backers has been, and still is, invaluable for the banking reformers.
The IMF – where Pysaruk worked for three and a half years before moving to Raiffeisen in October – has taken a tough line with Zelensky, making it clear that any further assistance will be contingent on the new administration proving its bona fides on PrivatBank and Kolomoisky.
Key demands are understood to include the vigorous pursuit of claims against Kolomoisky and Bogolyubov in the Ukrainian courts, something that has so far been entirely lacking.
The fund also wants to see efforts made to recoup the $10 billion paid out to compensate depositors in Ukraine’s other failed banks.
As a western official puts it: “Why come to the international community for financing when you’re not doing everything to recover what you’re actually owed?”
So far, the response to this ultimatum may not have been quite what the IMF had in mind.
The arrest of the head of state-owned Ukreximbank and half a dozen former employees of VAB Bank, which was closed by the central bank in November 2014, and the inclusion of VAB owner Oleg Bakhmatyuk on Ukraine’s most-wanted list, could be seen as steps in the right direction.
The inclusion of Pysaruk in the list of detainees, however, and the failure to even hint at action against Kolomoisky and other well-connected oligarchs, suggest that justice in Ukraine remains at best selective.
Nevertheless, it is a start of sorts – and suggests that, whatever Zelensky’s relationship with Ukraine’s vested interests, the views of the IMF and international community do still carry weight in Kyiv.
With a fair wind, and a bit of luck, that could yet be enough to allow Ukraine’s many able, honest and dedicated public servants – at the central bank and elsewhere – to push through the next tranche of reforms needed to transform the country’s economy and attract foreign investment.
It may be hard to remember at times but, as a quick glance over five years of banking sector reform shows, immense progress has been made since Maidan. There is still a long way to go – but don’t give up on Ukraine just yet.