Publication: Monitor Volume: 6 Issue: 33

Late last month, an article in the international press alleged irregularities in the National Bank of Ukraine’s (NBU) use of International Monetary Fund loans. It stirred, as one might expect, a heated reaction both in Ukraine and abroad (see the Monitor, February 3). More recently, the Financial Times addressed the topic again. Reportedly, the NBU secretly moved some US$600 million from its reserves through Credit Suisse First Boston (CSFB) in 1997-1998. This placed the funds at risk, but the domestic debt market was propped up, however feebly. In window-dressing the reserves, the IMF was, it would certainly seem, cheated. An IMF spokesman is said to have confirmed that the Fund asked Ukraine to investigate these new allegations. The U.S. Treasury apparently also expressed concern over the allegations (Financial Times, February 11, 14; Wall Street Journal, February 11).

The most recent reports coincided with Ukrainian Premier and former NBU chairman Viktor Yushchenko’s visit to London on February 14-15 to present to creditors a plan of exchange of Ukraine’s debt obligations totaling some US$2.7 billion for new long-term securities. Ukraine desperately needs the exchange to avoid a default. No wonder that the reaction in Ukraine to the new allegations was prompt and angry. The chief of the president’s administration, Volodymyr Lytvyn, claimed that the substance of the article had been “made up here in Ukraine to then appear in the foreign media.” NBU spokesman Dmytro Rikberg bluntly defined the report as “a part of a program to discredit Ukraine.” Yushchenko, speaking in London, called the allegations about the NBU having used IMF funds for speculative investment “pure disinformation” and did not rule out that this could affect the government bond exchange plans. The NBU is now being audited by PricewaterhouseCoopers.

The allegations are no surprise to the Ukrainian government. In November 1998, the opposition in parliament set up an ad-hoc commission to examine whether the NBU had violated any law in depositing US$75 million in CSFB’s Cyprus-based subsidiary. In May 1999, the same commission accused the NBU of incurring a US$100 million loss from operations with CSFB and recommended that President Leonid Kuchma dismiss NBU chairman Yushchenko. The parliament then rejected the commission’s report while Kuchma orally defended Yushchenko. Ukrainian First Deputy Premier Yuri Yekhanurov suggested that the Financial Times had used the ad-hoc commission’s materials in its articles (Segodnya, May 5, 1999; STB TV, February 11; Studio 1+1, February 12; Financial Times, February 15; see the Monitor, October 22, 1998, May 7, 1999).