Bloomberg Reports New Oligarchs Threaten Ukraine Reconstruction

The successful funding of Ukraine’s post-war will hinge on the country’s progress in further rooting out corruption and the post-Soviet kleptocracy that created a billionaire class, according to Bloomberg, the highly regarded UK-based financial publication.

Bloomberg makes the point that Ukraine is currently clinging to the financial lifeline provided by the tens of billions of dollars in aid from the US and European Union, with substantially more needed for post-war reconstruction.

A failure to more systematically root out graft would endanger that rebuilding, it writes and goes on to cite an IMF staff report in December that identified the re-entrenchment of “oligarchic interests” as a high risk to Ukraine’s reform and future external financing. 

Bloomberg quoted Valeriya Gontareva, Ukraine’s central bank governor from 2014-2017, as saying “Donors are not afraid of the old oligarchs … they’re afraid of the new ones” that may feed off a Marshall plan for Ukraine.

According to Bloomberg, “much will depend on the decisions that Zelensky, the EU, the U.S. and international organizations such as the IMF take mid-war, while the oligarchs are weakened and “politics as usual” is suspended. Now is the time to strengthen institutions and remove the conditions that allow graft to flourish. Key allies from the Group of Seven nations are pressing the government in Kyiv to resume reform programs now, according to a European diplomat familiar with the matter.

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In late March the IMF signed off on  new $15.6 billion aid package for Ukraine that would come in two phases. Requirements for reform would kick in only for the second leg, 12-18 months into a four-year program. 

Gontareva further told Bloomberg that the paradox is that Ukraine may still need to woo those oligarchs who are playing by the rules, to encourage them to stay and re-invest, rather than take their money to safer markets abroad. Those include Rinat Akhmetov, the nation’s richest man, whose wartime philanthropy has made him something of a hero, which prompted Gontareva to say: “in all my life I never thought I would say that,” 

Akhmetov, a steel and power tycoon, lost factories, coal mines and his political base to Russian occupation. His fortune has dropped from $15.4 billion in 2013 to $5.7 billion now, according to the Forbes index of world billionaires. Metinvest BV, in which he has a controlling share, owned the vast Azovstal steel plant that became Ukraine’s last line of defense in the now occupied port city of Mariupol.

Arseniy Yateseniuk, Ukraine’s former Prime Minister, also spoke with Bloomberg on the topic. “On the one hand, this war is a crisis, but on the other hand it is a perfect chance and opportunity to reform Ukraine. I don’t believe that the old Ukraine is a sustainable model, not even the Ukraine that existed between 2014 and 2022,” he said. 

Ukraine has improved in the world on Transparency International’s annual corruption perceptions index, from 142nd worst in 2013 to 116th today. 

However, Bloomberg notes that “a clean-up of the judiciary and tax system, plus the digitalization of government procedures that would bring transparency are still missing. Without these steps, there is still a risk that corruption among government ministries will again poison Ukraine’s future, according to current and former officials.”

“The flow of money going to reconstruction should be well controlled [by donors[, although to some extent that is wishful thinking,” said Francis Malige, managing director for financial institutions at the European Bank for Reconstruction and Development, who ran the EBRD’s operations in Ukraine and several other ex-Soviet countries from 2014-2018. “Look at what happened to the money spent in Afghanistan and Iraq.”

Bloomberg also cites a key EU diplomat speaking anonymously: “Keeping Ukraine on the reform path will be crucial. The EU is very likely to renew tariff breaks for the country for a second year, starting in June, but the debate on permanent relief has yet to begin.”

Bloomberg notes that “some critics have even begun to worry Zelensky is setting Ukraine on a path that could prevent a return to a more liberal post-war order. More big companies have been taken under government control, including the largest oil company, Ukrnafta.

“An anti-oligarch law passed in 2021 proved controversial, with critics and some of Ukraine’s international partners concerned it could restrict media freedoms and be open to political abuse, while failing to reform institutions,” Bloomberg writes.

Those fears are overdone, according to Serhiy Leshchenko, who also spoke to Bloomberg and is a former anti-corruption activist and parliamentarian, who now serves as adviser to Zelensky’s chief of staff. The law helped cut the power of the oligarchs to manipulate public opinion and governments where all else had failed, he said.