Crucial laws stalled in parliament as lawmakers self-isolate from work

As fear of the COVID-19 pandemic hits parliament, and one lawmaker tests positive for coronavirus, lawmakers are delaying the passage of crucial legislation meant to keep Ukraine afloat amid an imminent economic downturn.

Without passing two laws – on legalizing farmland sales and on banning the return of nationalized banks to their previous owners — Ukraine is expected not to receive a much-needed $5.5-billion financial assistance program from the International Monetary Fund (IMF).

In particular, the IMF wants the bank law, which would ban oligarch Ihor Kolomoisky from regaining control of Privatbank, Ukraine’s largest bank, which he owned until its nationalization in 2016 and recapitalized at taxpayer expense.

Kolomoisky’s influence in the country has for long been a stumbling block in Ukraine’s relations with foreign creditors.

On March 16, President Volodymyr Zelensky in his now daily address to the nation said that parliament will continue its work amid the crisis.

“In the time of a pandemic and the threat of a global financial crisis, the parliament should pass laws, engage in reforms,” Zelensky said.

Zelensky emphasized the need to appoint a new prosecutor general and ministers of economy and energy, while also passing laws on farmland, taxation and a new labor code.

But after one lawmaker tested positive for coronavirus, his colleagues decided to disobey the president. After holding an emergency session on March 17, during which the economy minister and the prosecutor general were appointed, the parliament changed its schedule, de facto pausing activity until April 3.

The pause comes at the worst possible time – Ukraine needs external financial support, yet the laws required to receive it are being delayed.

The crucial legislation

On March 11, Prime Minister Denys Shmygal told journalists that Ukraine had completed all but two IMF requirements. The completion of those requirements will unlock a $5.5 billion credit line from the IMF and an additional $1-billion loan from the European Union.

The two requirements left are to pass the law on farmland sale and, most importantly, the bank law.

Read More: As COVID-19 sparks economic downturn globally, Ukraine prepares to take a hit

The law on allowing farmland sales has been holding up parliament since early February. It has become a highly politicized issue.

In 2001, Ukraine introduced a moratorium on selling farmland until a new Land Code could be adopted. The Land Code was never adopted, and parliament prolonged the moratorium a total of 10 times.

After taking office in May, President Volodymyr Zelensky made lifting the land moratorium a top priority. Zelensky’s 248-member Servant of the People party drafted the bill and was scheduled to pass it in February. But opposition parties were able to successfully stall it by introducing 4,018 amendments.

Each amendment needs to be voted on. The parliament’s work has been stalled for months. As of March 9, slightly over 3,000 amendments have been discussed. Only two were adopted.

International institutions including the IMF and the World Bank have for long called for lifting the archaic moratorium, promising that, by doing so, Ukraine will attract investment and increase its economic growth.

But for the IMF, the real priority is the bank law. The law envisages that banks nationalized by the state cannot be returned to their previous owners. It is intended to ensure oligarch Kolomoisky cannot retake PrivatBank.

Until 2016, he and his business partner owned the bank. When it was nationalized in 2016, Ukraine’s central bank found a $5.5-billion hole in its ledgers and discovered that virtual its entire lending portfolio was insider loans. The central bank and Ukrainian authorities allege that the previous owners stole the money.

State-owned PrivatBank is now suing Kolomoisky in London, Tel Aviv, Geneva and Kyiv.

Kolomosiky denies all accusations of wrongdoing and is countersuing the bank in Kyiv. He alleges that the state raided his property. The oligarch wants the bank back or substantial compensation from the state.

In a November closed-door meeting, the IMF stated that Ukraine won’t receive money that may end up in Kolomoisky’s pockets, Ukrainian media reported.

The Cabinet of Ministers of former Prime Minister Oleksiy Honcharuk introduced the bank bill. However, when he was fired by parliament on March 4, the bill was automatically recalled.

Both the land and bank laws should have already been adopted, says Timothy Ash, an emerging markets strategist for Bluebay Asset Management Company.

“Rada deputies should realize the urgency of the situation,” he adds.

Parliament halt

However, after wasting over a month, the parliament is about to waste more time after lawmakers deciding to skip work in fear of the ongoing COVID-19 pandemic, which has killed over 10,400 people worldwide, three of them in Ukraine.

On March 17, against the president’s will, lawmakers voted to amend their schedule. According to the new schedule, instead of holding parliamentary sessions and voting for the farmland amendments, lawmakers will work in parliamentary committees until April 3.

However, according to the parliament’s website, there are no scheduled committee meetings until April 7. The only official meetings until then are a special commission hearing on war veterans’ issues and a meeting of parliamentary faction representatives to discuss the parliament’s agenda.

“There’s now panic among lawmakers, but everyone is trying to maintain the quarantine,” says Yaroslav Zheleznyak, deputy head of the 20-member Voice parliament faction.

The news comes days after lawmaker Serhiy Shakhov, who returned from France on March 11, tested positive for COVID-19. Shortly after returning to Ukraine, he attended the parliament’s ecology committee and appeared on multiple political talk shows.

Roksolana Pidlasa, a lawmaker from the 248-member Servant of the People party, says those who were in direct contact with Shakhov have decided to self-isolate, while others are continuing their work.

Where exactly remains unknown.

Yet, with parliament’s work halted, Ukrainian economy is preparing for a hit. Timofiy Mylovanov, Ukraine’s former economy minister, predicts that up to 500,000 people will lose their jobs due to the economic crisis caused by the coronavirus pandemic. That’s over 2% of the workforce.

In such a case, Ukraine needs to sign a deal with the IMF as soon as possible.

“During the crisis, financial markets halt and private investors become more cautious,” writes Mylovanov. “Therefore, the role of international financial institutions becomes more important.”

“Often, they become the only source of funding at acceptable interest rates,” he adds.

However, the IMF loan is far from a done deal. The farmland bill still has almost 1,000 amendments to be discussed, while the bank law isn’t even registered in parliament.

Pidlasa says that lawmakers are ready if an emergency session is scheduled. But adopting a vast package of legislative initiatives requires more than a day. The bank bill requires a vote on its first reading, a committee discussion, passing amendments and a vote on the second reading. Only then can it become a law.

“Ukraine needs the extra IMF resources now to fight the virus,” analyst Ash told the Kyiv Post. Yet, there is no reason to believe that it will be getting it soon.