The latest news from Ukraine arouses considerable interest in the international community, especially in the context of relations with the International Monetary Fund. Ukraine, having fulfilled its obligations related to the adoption of the law on restarting the banking sector (BEB), expects to receive another tranche of funding from the IMF in the amount of $2.2 billion.
This law was a structural beacon at the end of June.
Also, a new memorandum with new structural beacons should be released. It is expected that customs will be cleared according to the same scenario that has already been run on the BEB.
The new priority of the West
Over the past ten years, a stereotype has been established in Ukraine that Western partners, demanding reforms from us, give priority attention to the strengthening of anti-corruption structures, such as NAZK, NABU, SAP, VAKS. However, this is yesterday's priority. Now the West has a new priority: rebooting fiscal bodies, i.e. structures that "milk" business.
This change of priorities would happen regardless of the names of the president, the speaker of the parliament and the prime minister. It has completely objective reasons:
- In ten years, the Ukrainian authorities have fulfilled many requirements regarding the creation, development and strengthening of anti-corruption structures. And it is increasingly difficult for Western partners to invent what else to demand in this direction.
- The effect of the work of NAZK, NABU, SAP, VAKS was, of course, not zero, but still an order of magnitude less than expected. Anti-corruption structures proved to be powerless to break the schemes built with the participation of fiscals.
- Western businesses operating in Ukraine complain not so much about the corruption of officials as about the arbitrariness of the BEB, customs and tax authorities. If this problem is not solved, it will be impossible for Western investments to come to Ukraine to restore the economy from the consequences of a full-scale war.
- In the last two and a half years, the West has poured more resources (financial and military) into Ukraine than in the previous 30 years, so it now has a much more powerful set of tools to influence the Ukrainian government.
But, in addition to objective reasons, it seems that there are also subjective reasons. If Bankova had ensured the proper functioning of the fiscal sphere, the Western partners probably would not have demanded its immediate reform.
The restart of the fiscal authorities will begin with the BEB. His example clearly shows what technology is used to achieve the desired. It consists of three steps.
The first step: deliver on the promise of reform
We remind you that the Bureau of Economic Security is the brainchild of the current government. It was created three years ago to replace the tax militia of the State Fiscal Service. The draft law on BEB was introduced by the chairman of the finance committee of the Verkhovna Rada, the "servant of the people" Danylo Hetmantsev, in July 2020 and adopted in January 2021.
Bankov, together with Hetmantsev, was refused by the G7, the European Union and the IMF, who wanted to see a competition for the position of the director of the BEB with the decisive vote of international experts. A competitive commission was formed consisting of three members appointed by the National Security Council (i.e. Volodymyr Zelenskyi) and three members appointed by the parliament (i.e. “servants of the people”, read — Zelenskyi). It is not surprising that the head of the State Fiscal Service Vadim Melnyk was among the three finalists of the competition. In August 2021, the Cabinet of Ministers appointed him as the director of VEB. Of course, it would be naive to expect that such a BEB would be beyond the control of the Bank.
The order of the Cabinet of Ministers on the start of the BEB was issued on November 24, 2021. However, in three months, a major war began. Ukraine's dependence on Western partners and their money has increased dramatically. And by the end of 2022, Bankova began to demonstrate readiness to restart the BEB, taking into account the wishes of the West.
On December 13, 2022, the Verkhovna Rada created a temporary investigative commission (TCC) to investigate possible violations of Ukrainian legislation by BEB officials. TSK was headed by Hetmantsev's first deputy as chairman of the parliamentary committee, Yaroslav Zheleznyak (a faction of the "Voice" party). On February 20, 2023, Hetmantsev's committee recognized the work of the BEB management as unsatisfactory. And on March 3, Hetmantsev and Zheleznyak and their co-authors submitted to the Council draft law No. 9080 on restarting the BEB. He gave control over the competition to Western partners.
All this was done with the help of IMF money. On March 24, 2023, the President, Prime Minister, Minister of Finance and the Chairman of the National Bank signed and sent to the IMF a memorandum on economic and financial policy. Among Ukraine's obligations, there were changes to the law on BEB and reorganization of BEB.
On March 31, 2023, the IMF Executive Board approved a four-year Enhanced Financing Program (EFF) for Ukraine in the amount of about $15.6 billion. Soon Ukraine received the first tranche of $2.7 billion.
The second step: meet a specific deadline
On April 11, 2023, the director of BEB Melnyk was dismissed, and the need for a new competition under the new law increased. However, instead of a quick reform, a competition between Bankova and its Western partners resulted.
At first, the Ukrainian authorities trivially delayed the process. On June 19, 2023, it sent a new memorandum to the IMF, in which it announced the creation of a working group to review the legal basis of the BEB's activities. This was enough for the IMF executive board to allocate a new tranche of almost $900 million.
The results of the working group's activities appeared in three months. On September 21, draft law No. 9080 was withdrawn, and on September 25, Zheleznyak and Hetmantsev and their co-authors introduced draft No. 10080 instead. Then, on October 10, Hetmantsev submitted a revised project #10080-1, and it was recommended by the committee for adoption in the first reading on October 13.
This project suited the Western partners, and they explained to Kyiv that it was time to start fulfilling the promise. On December 1, the Ukrainian authorities sent a new memorandum to the IMF, in which the adoption of the law on reforming the National Bank of Ukraine was recorded as a structural beacon for the end of June 2024. After that, the IMF executive board allocated another tranche in the amount of almost $900 million.
The third step: get the law passed
Now it was impossible to prolong the process, and Bankova changed her tactics. On December 29, the Cabinet of Ministers approved a new bill on the restart of the BEB, which meant that Zelenskyi's office wanted to carry out the reform according to its script.
On January 29, 2024, the government draft law was registered under No. 10439. The G7 ambassadors spoke against him in a letter to the Chairman of the Council Ruslan Stefanchuk, Prime Minister Denys Shmyhal and the head of the President's Office Andriy Yermak. However, Bankova managed to bring draft No. 10439 to a vote in the Council on February 23. However, it received only 222 votes (out of the minimum required 226) and was sent to a repeat first reading.
On March 11, the Ukrainian authorities sent a new memorandum to the IMF with the same promise to reform the BEB. Since the deadline has not yet arrived, the IMF executive board again allocated a tranche of almost $900 million.
In order to receive the next tranche, it was necessary to fulfill the promise and pass the law, and in a form that suits the Western partners. On April 11, draft #10439 was adopted in the first reading, after which it was time for decisive negotiations between all interested parties.
Bidding continued until June 20, when draft No. 10439 was submitted for second reading. On June 19, Hetmantsev's committee voted for a wording that did not please Western partners, and they seem to have threatened Zelenskyi's office with the threat of ending cooperation with the IMF. The threat happened. On the morning of June 20, before the actual voting, Hetmantsev's committee reviewed its decision and adopted a wording that meets Ukraine's obligations.
After that, the Council adopted draft No. 10439 in the second reading and as a whole. Its final edition received positive feedback from the G7 ambassadors. On the same day, they announced that they "welcome the adoption of the law on the reform of the BEB, which will allow for a complete restructuring and reboot of the Bureau and its management with the participation of international partners."
The next tranche of the IMF is expected in the amount of $2.2 billion. According to Zheleznyak, the executive board of the IMF can make a decision on June 28. At the same time, a new memorandum will be published.
Next in line
The reform of the BEB is only part of the fiscal structural reforms that Ukraine has undertaken to implement. The March memorandum contains long paragraphs on reforming the tax and customs services, but without a deadline. Zheleznyak predicts that in the June memorandum "there will be a significant update of structural beacons, among them you will see the appearance of customs reform."
And this is not the end of the story. Western partners are already preparing the next reforms, which Bankova is waiting for, let's say, without great joy.
Recently, The Washington Post reported some details of the visit to Kyiv by US Secretary of State Anthony Blinken on May 14. "The meeting between Zelenskyi and Blinken was tense: the Ukrainian leader expressed his gratitude for US military aid, but appeared to be disappointed by Blinken's attention to corruption," the newspaper reported, citing "people familiar with the discussion who spoke on condition of anonymity because of the sensitivity of the topic ".
A little more than a month passed — and on June 21, John Bass, Blinken's deputy for political affairs, came to Kyiv. He had many meetings (in particular, with anti-corruption activists, Zelenskyi's office chief Andriy Yermak, Defense Minister Rustem Umerov, Foreign Minister Dmytro Kuleba), but two meetings are relevant to our topic.
In the Verkhovna Rada, Bass met with the head of the "Servants of the People" faction David Arakhamia, the head of the anti-corruption committee of the parliament "servant of the people" Anastasia Radina, the head of the European integration committee of the parliament Ivanna Klimpus-Tsintsadze (the "European Solidarity" faction) and Yaroslav Zhelezniak. According to Zheleznyak, it was a "meeting about reforms": Bass congratulated the adoption of the law on restarting the BEB and "asked for some help with the reform of customs, the Accounting Chamber and ARMA."
And then, according to the American embassy, Bass met with Prime Minister Denys Shmyhal "to discuss US support for Ukraine's economy and reforms that will return revenue to the budget to support defenders on the front lines and help attract private investment needed to rebuild Ukraine." . It can be assumed that it was also primarily about customs reform. She is the first in line after BEB.
