KYIV — After weeks of wrangling, Ukraine lawmakers Wednesday effectively blocked a powerful oligarch from regaining control of his former bank, potentially unlocking a $5 billion loan package from the International Monetary Fund.
With the economic crisis triggered by covid-19 threatening to slash Ukraine’s GDP by nearly 5 percent, according to the government’s estimate, Ukraine desperately needs the IMF funding to deal with the pandemic and reboot its economy.
The new law targets one of Ukraine’s most powerful oligarchs, Ihor Kolomoisky, co-owner of Privatbank, the country’s largest lender, nationalized in 2016 after $5.5 billion of its assets disappeared.
Court action by Kolomoisky to recover Privatbank is ongoing. But the law passed Wednesday — known in Ukraine as “anti-Kolomoisky law” — makes it impossible for him to regain control of the bank. The new law prevents former owners of banks that have been nationalized after insolvency from regaining their assets.
Efforts to pass the bill were almost derailed after its March 30 initial passage through parliament. Lawmakers introduced 16,335 amendments, a record number, threatening to bog down the law for months.
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Some feared debate on the 16,000 banking bill amendments would take so long that Ukraine risked running into liquidity problems before the bill was passed. But the parliamentary finance committee managed to handle the amendments in four days.
The passage of the law and the IMF package it unlocks were seen as a crucial test for Ukraine’s president, Volodymyr Zelensky, a former comedian whose popular TV show, Servant of the People, aired on Kolomoisky’s TV station.
His former association with Kolomoisky led to questions on whether Zelensky would be able to steer the bill through the parliament, where many members of his party, named Servant of the People after the TV show, opposed the law.
Zelensky was elected a year ago with more than 70 percent of the vote. His approval rating in April was 42 percent, down 2 percent on the previous month, according to local surveys.
Zelensky — who arrived at parliament Wednesday wearing a medical mask, but took it off to speak — told the Chamber of deputies in masks to support the legislation and “should protect the Ukrainian economy, at the very least, protect and help Ukraine right now.”
Hlib Vyshlinsky, executive director of the Kyiv-based Center for Economic Strategy, said Ukraine would have risked a financial crisis and default without the new IMF money, because of the global economic difficulty caused by the covid-19 pandemic.
Anders Aslund, senior fellow at the Atlantic Council and economic expert on Ukraine, said it was vital that Ukraine got the IMF funds this year.
“Because of the crisis, the budget deficit is increasing, and the only serious funding available is from the international financial institutions. Without it, Ukraine would have to go for serious austerity in the midst of the coronavirus crisis.”
Most of the amendments came from a handful of members or former members of Zelensky’s Servant of the People party, including Olha Vasylevska-Smahliuk, a former employee of Kolomoisky’s 1+1 television channel.
IMF officials announced last week that negotiations with Ukraine would switch from a $8 billion, three-year plan to an 18-month “standby” program for $5 billion with fewer conditions.
The move was precipitated by “the unprecedented uncertainty surrounding the economic and financial outlook, and the need to focus policy priorities on near-term containment and stabilization,” IMF spokesman Gerry Rice told a news conference.
Tetiana Shevchuk, a lawyer at the Kyiv-based Anti-corruption Action Center and anti-corruption expert, said Kolomoisky was determined to retain influence in the parliament and through powerful officials.
“Financially, he is losing at least $5 billion, which he hoped to receive as a compensation for Privatbank. However, politically it will mean in eyes of general public and political elites that he has lost control over Zelensky, which is a real blow,” she said.
Aslund said the passage of the law meant Kolomoisky would lose the bank but he would still have metallurgical factories, airlines, television network 1+1 and other assets. He also still has allies in parliament.
“This is hardly the end for Kolomoisky,” said Aslund, “because he has so many other assets, but it should be the end of his alliance with Zelensky, who is then turning to the West and decency instead.”
Opponents of the bill, including Kolomoisky, argued in favor of restructuring Ukraine’s debt, instead of getting IMF finance.
The new leadership of the nationalized Privatbank has launched legal actions in Delaware, Cyprus and London for recovery of the bank’s assets from Kolomoisky. The oligarch, meanwhile, has won court cases in Ukraine stating that the bank should be returned to him.