Western Aid to Ukraine Vanishes in Black Hole
Alexander DONETSKY 27.04.2015 00:00

After long debates the International Monetary Fund approved a 4-year $17.5 billion loan program for Ukraine, including an immediate $5 billion disbursement. Then the European Commission offered a 1, 8 billion euro aid package to be given out in three trenches. The United States is to provide a $2 billion package too. The total amount of foreign aid is gradually increasing to $40 billion. The country’s GDP is around $373 billion (PPP). Ukraine has plunged deep into debt; the debt-to-GDP ratio is growing while the foreign aid has failed to restore economy. It all goes into a black hole. No turn for the better is in sight. 

* * *

The system which has been established in Ukraine during the recent 23 years is called kleptocracy. It permeates the whole Ukrainian society from transport police to courts, from public utilities to state procurement. The 2014 coup made the situation worse. In 2014's Transparency International Corruption Perception Index was ranked 142nd out of the 175 countries investigated. It is placed near to Uganda, the Comoros, the Central African Republic, Cameroon, Nigeria and Papua - New Guinea. According to foreign investors the share of shade economy is 60 %. Alexander Okhrimenko, President of the Ukrainian Analytical Centre, one of leading Ukrainian experts, believes that the situation has greatly deteriorated. Graft is ubiquitous. Embezzlement accounts for up to 75% of military procurement. Raids have become routine. Officials take money for changing the names of registered property owners. Such impertinent behavior had been unthinkable before. Just a few minutes at the computer is enough to steal a company. That’s what makes foreign investors scared away. According to the Organisation for Economic Co-operation and Development, 57% cases of corruption fall on state procurement.

According to Ernst & Young, 2, 7 thousand companies’ leaders from 59 countries, including 60% of Ukrainian businessmen, admit that corruption is rampant in Ukraine. 

No matter Kiev says it is «waging a sacred war to defend Europe and the whole free world», graft and embezzlement spreads on military too. Internet shops openly sell foreign ratios and bullet-proof vests. Those, who can afford giving bribes, easily avoid conscription. Aleksandr Lapko, a senior specialist-assistant in the NATO Liaison Office in Ukraine, says, «I care deeply about my country and I want to defend it. But I was facing a dilemma: Should I go to war knowing that I will have to pay more than $2,000 out of my own pocket to get the military equipment that could save my life because official corruption has left the Ministry of Defense without enough adequate supplies to issue to new recruits? Or should I pay a $2,000 bribe to obtain papers falsely testifying that I am medically unfit and should thus be taken off the conscript list

US economist Richard W. Rahn does not believe the dire economic plight of the country is explained by high expenses for war. Ukraine does not spend more than 1% of GDP for military needs. According to Rahn, «Much of the Ukrainian budget appears to have been spent on various vote-buying schemes and old-fashioned graft». He thinks the new financial aid package will go down the drain without economic reforms. Well-known Ukrainian economist O. Soskin says the same thing. He believes that the money provided by International Monetary Fund will be distributed between the leading financial groups led by P. Poroshenko, I. Kolomoisky, A. Turchinov and other people representing the powers that be. Last year, 55% of IMF tranche went to the government and 45% - to the National Bank. True and tried schemes of money laundering will be used; internal state bonds issued and private banks that belong to Poroshenko, Kolomoisky and Yatsenyuk-Turchinov group will get credits on favorable terms. 

* * *

During this year a number of high-profile scandals broke out. Each of them was enough to make the government of any Western country resign. But Kiev turns a blind eye on them. The «fight against corruption» has become politically motivated. Take the South African coal deal. The charges are brought against the Ukraine’s Ministry of Energy and Ukrinterenergo. Having unleashed a war in the Donbass, the main coal mining area, the government put the country on the brink of economic collapse. It took a political decision to buy 1 million tons from South Africa. When coal started to arrive, it became clear that it was no good for Ukrainian power stations. The Energy Ministry and Ukrinterenergo were accused of corruption. The Ukrainian general prosecutor’s office detained Vladimir Zinevich, director of state-run company Ukrinterenergo, charged with squandering $30 million while concluding a deal to buy the coal of poor quality in South Africa and unjustifiably raising prices when selling the coal to Ukrainian consumers. The government changed after the parliamentary election and the case was forgotten. 

Yulia Timoshenko revealed corruption in Naftogas, a state energy company. Nothing was done to check her accusations. According to Timoshenko, the price cost of gas in Ukraine is at least $23, 5 per thousand cubic meters. It is sold at much higher price to raise money for kickbacks. She said regional gas traders added nitrogen additives to reduce heat emission and thus increase consumption and subsequently, housing and utilities payments. They make personal profit out of it. Nothing has been done to investigate the case because the main thing for Timoshenko is the fight against Yatsenyuk, not bringing things in order in energy sector. 

Poroshenko exerts pressure on Yatsenyuk. MP S. Kaplin of presidential party submitted a bill on creating a panel to investigate the cases of corruption in the government. The former head of the state financial inspection Nicholas Gordienko said the government of Arseniy Yatsenyuk uses corruption schemes, the harm of which amounted to almost 7, 6 billion (more than $320 million). According to him, corruption schemes were practiced by Ukrainian Railways, Ukrgasdobicha, Ukrpochta, Ukrzheleznodorozhpostavki, Ukrtrangas and Neftegas. In response Yatsenyuk fired Gordienko and launched a lawsuit against him. The Prime Minister stays in office. 

After «the revolution of dignity» Ukraine created an anti-corruption bureau. One has to pay 100 thousand dollars to get a position there. Those who are ready to pay such sums know they will return the money in three months. 

* * *

Naturally, the total corruption in Ukraine evokes concern among Western investors and financial donors, who, as David Cameron noted, have to throw money into black holes violating the laws of their own countries. MEP Beatrix von Storch says the decision of European Parliament on Ukrainian credit violates article 212 of European Constitution. Steve Stockman, the U.S. House Committee on Foreign Affairs, asked the Congressional Research Service to investigate cases of corruption and fraud with public funds in Ukraine. The West is losing interest, it sees no prospects for doing business in corruption – stricken Ukraine. The governments of Western states and large international institutions don’t plan to take part in the International Conference for financial support of Ukraine to be held on April 28. European Commissioner Johannes Hahn, who is responsible for the EU's neighborhood policy, told Reuters: «We have to avoid a bottomless pit. We want to have a precise plan». At that the whole history of relationship between Ukraine and foreign donors shows there is only one plan possible. It boils down to getting money to steal. Once allocated, it vanishes in a black hole.