Corruption is the biggest threat to Ukraine’s independence and survival as a free country, even more so than Russian troops in Donbass.
For if corruption is allowed to win the day, as it always has, then Ukraine does not have a future, no matter how well it deals with the situation in the east.
Kiev made a big move this week toward a prosperous existence for its people, as the government rescued the country’s largest bank, PrivatBank, in a move that is sure to anger the powerful oligarchs who have looted the bank’s balance sheet for years. The bank had a current capital shortfall of almost $6 billion as most of the loan activity had gone to the bank’s shareholders.
The gripping corruption that has strangled Ukraine since its independence from the Soviet Union has been a thorn in the side of further aid from the International Monetary Fund. Taking over the largest bank in the country and assuring its depositors will be made whole will go a long way to helping the IMF loosen its purse strings for more money to flow to Kiev, which is desperately needed.
“We are sure that moving the bank into state ownership is the only possible way to save the money of the bank’s clients and to save the financial system,” said the Ukrainian Central Bank.
The real question will be who pays for the sweetheart deals that have been given to the shareholders. Will they be required to eat some of the losses? Or will the Ukrainian public be required to shoulder the burden? This question seems to be up in the air.
Resolution of loss accountability will provide transparency into the power struggle between oligarch Ihor Kolomoisky and Ukrainian President Petro Poroshenko. The bank was a vehicle for Mr. Kolomoisky to finance his many business interests in the country.
Mr. Poroshenko also will have to contend with opposition and pro-Russia forces using the bank nationalization to pressure the government and accuse Mr. Poroshenko of wasting taxpayer money. There have been multiple bank rescues in the country at the behest of the IMF, and the public has experienced financial pain as the smothering corruption is dealt with one sacred cow at a time.
For their part, multinational institutions like the European Bank for Reconstruction and Development have expressed support for the bank takeover and have hinted at possible capital injections into PrivatBank if the process goes smoothly.
All in all, the privatization was done quickly with government assurances that the equity owners and bondholders will suffer pain in the recapitalization. The Ukrainian Central Bank has said the bank will be sold back to the public once the institution is healthy.
If these assurances are met, then put a chalk mark in the win column for Mr. Poroshenko and his government. With further assistance that is sure to come from the IMF and the West after this high-profile action, Ukraine should keep pushing forward to make progress on rooting out corruption that permeates the economy.
With IMF chief Christine Lagarde being convicted on corruption charges this week and Italy’s banks teetering on failure years after the European bank crisis started, perhaps Europe can learn from its pupil. Ukraine may be getting the message that President-elect Donald Trump will not be handing over good money after bad.
Perhaps this is a move to impress the new American leader that Ukraine is serious about fixing its own problems so Ukraine can continue to receive support against Russian power in the east.
One could make the argument that Mr. Poroshenko’s aggressive action to privatize PrivatBank is another consequence of the Trump election even before he is sworn into office.
• L. Todd Wood is a former special operations helicopter pilot and Wall Street debt trader, and has contributed to Fox Business, The Moscow Times, National Review, the New York Post and many other publications. He can be reached through his website, LToddWood.com.