LAZARENKO’S VENDETTA.

Ukraine’s international image was tarnished and the integrity of its leaders questioned by a report last week alleging that Kyiv had illegally recycled International Monetary Fund (IMF) loan money. Apparently, former Ukrainian Premier Pavlo Lazarenko–who is wanted on corruption charges in Ukraine and money-laundering charges in Switzerland and is seeking asylum in the United States–is to reveal details of allegedly illegal use of IMF loans in Ukraine in 1997-1999. Lazarenko has reportedly claimed that the National Bank of Ukraine (NBU) in December 1997 illegally converted a US$613 million IMF loan into speculative bonds and probably invested a portion of the US$200 million proceeds into President Leonid Kuchma’s re-election last year. Some of the transactions were allegedly made by Kuchma’s close aide, Oleksandr Volkov, who is the subject of a money laundering investigation in Belgium. It was also suggested that Washington advised Kuchma last December to bar several people, including Volkov, from policymaking (Financial Times, January 28-29).

Lazarenko’s motivation is clear: He wants to substantiate his claim for political asylum and prevent his extradition to Switzerland. In late 1998, he reacted to corruption charges in Kyiv with threats of publicizing unpleasant particulars about Ukrainian leaders (see the Monitor, December 23, 1998). Nothing sensational, however, had come from him until last week. The current allegations come at a crucial moment: Ukraine is negotiating resumption of a US$2.6 billion IMF Extended Fund Facility and a restructuring of its obligations worth some US$2 billion with foreign creditors. Should those negotiations fail, Ukraine may default on its foreign debts. The IMF is especially sensitive about similar allegations after its fiasco in Russia in 1998 and subsequent corruption scandals involving the Bank of New York. The IMF deputy director, Stanley Fischer, said that the IMF took the allegations against Ukraine, published in Financial Times, seriously.

On January 28, the Ukrainian government spokeswoman brushed aside Lazarenko’s claims, describing them as “attempts by certain forces to involve Financial Times and other organizations in political squabbles.” The indignant Kuchma, on a visit to Davos for the world economic forum, called Lazarenko’s claims “a provocation” and ordered an international audit of the NBU’s operations in 1997 with the participation of IMF experts (Den, UNIAN, January 29). NBU Chairman Volodymyr Stelmakh announced on January 31 that the audit will be conducted by PricewaterhouseCoopers (Ukraina Moloda, February 2).

Lazarenko’s allegations may seriously affect the positions of several key politicians and strengthen the opposition at home. Volkov–an “oligarch” who was a parliamentary target of corruption allegations several times, and whose contribution to Kuchma’s election victories in 1994 and 1998 is hard to overestimate–threatened legal action against the Financial Times(Den, January 29). Kuchma’s most valuable aide in politics, Volkov took a most active part in the recent formation of the parliament majority, and organizations controlled by him were instrumental in collecting signatures for a constitutional referendum inspired by Kuchma (see the Monitor, January 21). Reports about Volkov’s alleged role in the illegal financing of Kuchma’s re-election is a balm to the ears of the leftist opposition, which has since then been steadily losing its position in parliament and its influence on developments in Ukrainian society.

The scandal may also undermine Ukraine’s reform-minded Premier Viktor Yushchenko, who was chairing the NBU when, according to Lazarenko, the NBU carried out illegal transactions with the IMF funds. Kuchma pinned high hopes in negotiations with international lenders on Yushchenko, a Western-oriented banking professional with an honest image. Not only is Yushchenko’s radical economic reform now facing staunch opposition from the Red forces, but his anticorruption plans in the energy sector are regarded with suspicion by several tycoons close to Kuchma. An offensive against Yushchenko’s reform efforts has been already launched by Inter–Ukraine’s most popular television channel and controlled by the United Social Democratic Party, which unites several such tycoons. Inter blasts government policies in the energy sector (Ukraine is experiencing severe energy shortages) and planned cuts on social programs in an obvious effort to undermine Yushchenko’s popularity. Lazarenko’s allegations may add fuel to this campaign. At the same time, over the weekend, leading Ukrainian TV channels, controlled by Kuchma and his entourage, visibly tried to downplay the scandal ignited by the Financial Times stories (Financial Times, January 28, 29; Den, UNIAN, January 29; New Channel TV, Inter TV, STB TV, January 29-31).

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