Can the parliament restore asset declarations for public officials: Ukraine's progress in cooperation with IFIs

Since the beginning of the full-scale war in Ukraine cooperation with international financial institutions plays a key role in maintaining stability of the national economy. According to the data from the Ministry of Finance, the IMF and the World Bank are among top-5 biggest financial donors. But it’s not a charity – Ukraine takes a responsibility and obligations to carry out necessary reforms.

Frankly speaking, every week in Ukraine several decisions are made on issues that are stipulated by cooperation agreements with IFIs. As part of the work of Ukrainian Chapter of the Parliamentary Network of the World Bank and the IMF, I prepare for our partners a weekly digest based on a compilation of the most important news, insider info and own forecasts related to the key issues for the cooperation of Ukraine and the IFIs. However, I’m sure that to successfully fulfill these obligations, it is necessary for the civil society to monitor all the decisions regarding the cooperation conditions.Speaking of the previous week 17-23 July, Ukraine started discussions on restoring asset declarations of public figures, corporate governance reform in SOEs and nationalized bank of sanctioned owners Sense Bank. Unfortunately, that doesn’t mean that we are fulfilling the plan of obligations without any problems.

To begin with, the Parliament have started to prepare for the second reading the DL #5593-D on SOE corporate governance reform. Last week the first meeting of the working group was held with numerous stakeholders including representatives of the Verkhovna Rada, Ministry of Economy, US Embassy, EBRD, OECD etc.

To adopt the DL #5593-D and strengthen corporate governance in SOEs is the obligation of Ukraine under par.66 of the Memorandum.

MPs – members of the Ukrainian Chapter of the Parliamentary Network of the World Bank and the IMF will insist on several key provisions to be included and adopted in the DL in the second reading. These provisions are the following:

- Exclusive right of Supervisory Boards to appoint/dismiss CEOs;

- Exclusive right of Supervisory Boards to approve strategic and financial plans;

- Protection of Supervisory Boards members from unreasonable dismissals (exclusive list of reasons);

- Real accountability of members of the Supervisory Boards (independent audit and evaluation of their performance)

- Solving problematic issues of consolidated dividends.

According to the Memorandum the DL should be adopted by October 2023.

Last week there were also several positive decisions regarding state-owned assets and corporate governance. These issues have been in focus of our international partners since 2014.

First of all, the Committee on Finance, Tax and Customs Policy recommended a member of the Supervisory Board of the SOB "Ukreximbank". Oleksandr Bevz, ex-head of the director of the licensing department of the NBU, won the competition.

Currently Oleksandr is the project manager of the Working Group on International Security Guarantees for Ukraine.

Secondly, the Government made necessary decisions to launch large-scale privatization through online platform Prozorro.Sale. According to the statement on the official website, the CMU adopted technical amendments to start the process of large-scale privatization using the Prozorro.Sale. For these reasons, the CMU established the special procedure to authorize and organize e-auctions for large-scale privatization objects, as well as proposed provisions to ensure e-auctions from being disrupted by unfair participants.

The latest development that attracted the attention of international partners was that the Government of Ukraine nationalized the Sense Bank (ex-Alfa Bank) of sanctioned owners. On July 20 the National Bank of Ukraine informed that the Board has decided to resolve Sense Bank as a systemically important bank, and made an offer to the Cabinet of Ministers of Ukraine regarding the state’s participation in this procedure. On July 21 the CMU made a decision regarding the state’s participation in resolving the Bank. On July 22 The Ministry of Finance of Ukraine and the Deposit Guarantee Fund signed an agreement for the purchase and sale of 100% of the shares of the Sense Bank. Thus, the Sense Bank became one of the state-owned banks.

According to the NBU, after the end of the Martial Law, the MoF will be looking for the investors to sell the bank. It is crucial that the IMF sees a risk that this precedent can push possible abuses of the mechanism of nationalization of banks, if it is not a direct need for financial stability, as in the case of ex-Alfa Bank. This is rather about the further fate of PIN Bank in Ukrposhta, and the generally bad reputation of the state as the owner with all the scandals with the appointment of supervisory boards.

Speaking of the latter, problems with the appointments affects another Ukrainian obligation under the Memorandum with the IMF. The Parliament can’t consider the DL on the strengthening the independence of the National Securities and Stock Market Commission. The Office of the President still blocks the adoption of the DL #5865 which is mentioned as obligation of Ukraine in the Memorandum with the IMF in the second reading. As we reported in previous issues, the Office opposes the appointment of the NSSMC’s members based on the results of competitive selection, which, in turn, was a requirement of the World Bank.

Last week, there were several other problematic issues for further cooperation with the IFIs.

It is primarly about the obligation to restore declarations. The Verkhovna Rada may consider the DL on restoring asset declarations for public officials. The Head of the faction Sluga Narodu David Arakhamia announced the DL #8071 to be considered at the end of July. According to Mr. Arakhamia, the DL will be voted in the first reading. However, the text of the DL #8071 just restores the obligation of public officials to submit asset declarations. As far as we know, the Ministry of Justice prepared another text of the DL, which had to be discussed and agreed with the IMF. It was said that the Ministry’s text considers the war time and martial law peculiarities. Most likely the parliament will consider this particular DL from the MoJ.

However, it is still unclear whether there are enough votes for any of the DLs in the first reading among MPs. Moreover, the deadline for the obligation to enact the law to restore asset declaration of public officials not directly involved in the mobilization and war efforts and reinstating the NACP’s function to examine and verify them under the Structural Benchmark #9 of the Memorandum with the IMF expires at the end of July. Thus, it seems that Ukraine will fail to meet the deadline of this benchmark.

The Economic Security Bureau of Ukraine (ESBU) announced competitions for positions of detectives and senior detectives with discriminatory requirements. According to the qualification requirements, published on the official website of ESBU, candidates should have at least 3-6 years of work experience in law enforcement agencies or in positions related to procedural management. That means that competitions can win only law enforcement officers committed to the current "system". This just strengthens the importance of including in the last version of the Memorandum a paragraph on the reform of the ESBU.

Overall, it already seems that Ukraine won’t be able to meet the deadlines at least of two structural benchmarks of the IMF, including the one with the restoring declarations for officials. So, the second review of the four-year Extended Fund Facility program wouldn’t be so brilliant but we should find an opportunity to fulfill all planned obligations at least till the time of the next program review.

Iaroslav Zhelezniak, co-Chair of the Ukrainian Chapter of the Parliamentary Network of the World Bank and IMF, First Deputy Head of the Parliamentary Committee on Finance, Tax and Customs Policy