We have no argument with the necessity of the Ukrainian government’s nationalization of PrivatBank, the nation’s giant financial institution with 20 percent of the nation’s $53 billion in banking assets.
Our argument is that it should have been done much earlier and at far less cost than the $6 billion bailout awaiting Ukrainian taxpayers. The delay appears to have only given the bank’s owners, billionaire oligarchs Ihor Kolomoisky and Gennadiy Boholyubov, more time to empty the bank out -- and we hear that is exactly what they did in the final weeks.
At the least, they should be facing a criminal investigation on suspicion of bank fraud. They have, in fact, been facing a lackluster and inconclusive investigation by prosecutors into what happened with $1.8 billion in refinancing money that PrivatBank’s owners got from the central bank in 2014.
Let’s look at the facts leading up to the nationalization:
Kolomoisky’s unethical business practices of driving his companies into bankruptcy (AeroSvit) before abandoning them and not paying taxes (Ukrnafta) are widely chronicled.
Who really thinks he could change, particularly after never having been prosecuted?
National Bank of Ukraine Governor Valeria Gontareva on Dec. 19 admitted the central bank has known for a year that PrivatBank was not meeting its capital-investment requirements to stabilize the bank’s finances.
The central bank has also known for months that as much as 93 percent of the bank’s loan portfolio consists of insider lending. Can someone tell us the difference between insider lending and bank fraud or embezzlement? Oleksandr Zavadetsky, the former head of the NBU’s related party loans monitoring department, said the bank should have been nationalized last year after the extent of insider lending became known.
Finally, the NBU had a curator in PrivatBank since it refinanced Kolomoisky’s bank in 2014. Regulators had access to the bank and would know how much Kolomoisky withdrew before nationalization.
So, please international institutions and governments, stop with the official statements about what a courageous act of governance took place here. It was nothing of the kind. After poor regulatory oversight, nationalization was the only option left. PrivatBank insisted with no credibility that it was meeting capital requirements and had little insider lending.
The credit for calling a halt to PrivatBank’s mismanagement belongs to the International Monetary Fund, which is holding up further installments of a $17.5 billion loan program until Ukraine gets its act together in banking and other reforms, such as pensions. The lending is frozen at $7.7 billion, but the PrivatBank nationalization and adoption of a responsible 2017 budget might be enough to unlock another $1.3 billion loan. That would be unfortunate, however, since major reforms in rule of law have stalled, threatening to reverse the fragile progress since 2014.
So what happens now?
Government auditors and investigators will drag their feet and not dig too much for evidence of criminal bank fraud, even though it probably is everywhere. There’s no chance that Kolomoisky or any of PrivatBank’s management will face criminal charges in this corrupt-by-design nation. Who knows, in this warped country Kolomoisky might sue for damages?
To make it look better, President Petro Poroshenko might negotiate modest amounts for Kolomoisky to repay from ill-gotten gains and systemic insider lending to take the sting out of the gargantuan taxpayer bailout ahead. This won’t answer the question on the minds of many in Ukraine: What kind of agreement did Poroshenko make to get Kolomoisky to surrender PrivatBank? Something akin to the 2014 Vienna Agreements, in which ex-President Viktor Yanukovych allies Dmytro Firtash, Yuriy Boyko and Serhiy Lyovochkin are believed to have received presidential assurances of no criminal investigations against them?
The oligarch strategy remains in place: Nationalize losses, keep profits. Saddle taxpayers with more debt that they, their children and grandchildren will have to repay, as they wonder why schools, roads and government services are in such bad shape and why foreign investors are not coming in droves and why so many people want to live abroad. It’s hard for a nation to gain traction and become prosperous when it keeps getting fleeced so extensively by insiders, oligarchs and politicians.
The PrivatBank debacle deserves condemnation, not praise. The proper international response would have been: It’s about time, what took you so long? Don’t let this happen again. Investigate, assess the evidence and hold people legally responsible for any crimes they have committed.