“Thanks to Coronavirus We Have Land Reform” – Economist Sergey Fursa
4 April, 2020

After a historic week in Ukrainian politics that started with the bill set to make “denationalization” of PrivatBank impossible being passed in the first reading and which saw the long-awaited land market law adopted, it was important to get an expert opinion on what the Ukrainian economy can expect now that the IMF’s tranche can be released. The two laws were the requirements for this to happen. 

Sergey Fursa, a specialist of sales of debt securities at investment firm Dragon Capital, remains skeptical about Volodymyr Zelenskyy’s relationship with Ukrainian oligarch and former owner of PrivatBank, Ihor Kolomoisky. Moreover, he believes that the head of state merely made a virtue of necessity when he was left with no other option to avoid default after failing to engage other investors back in 2019.

Land reform and bank reform go hand in hand. It's not surprising that the IMF made bank reform one of its key criteria before it sent over its first tranches. On March 31, the Verkhovna Rada passed a bill that would make it impossible for billionaire oligarch [Ihor] Kolomoisky to ever get his hands on the bank again. Many are saying that this is finally the symbolism that a lot of investors and the West needed to show that [Volodymyr] Zelenskyy has cut ties with this oligarch. Do you think this is true?

I don't think so. Because currently there is another corruption scandal and we see that now Kolomoisky and Zelenskyy are staying on one side. And in the Rada, when he was promoting this law, asking MPs to work for them, he [didn't] sound like a person who will go away on a fight with Kolomoisky. He sounded very [apologetic]. "I do not like it too, but we should do it because we need money." So I do not think we already have a fire between Kolomoisky and Zelenskyy. Yes, Kolomoisky’s guys are not happy about it, Kolomoisky [himself] is not happy with it. Yes, his MPs weren’t voting for anything else during this session, but I do not think it's a war – I think it’s just one episode during [which] they are on different sides. But as far as I see, Zelenskyy is still very close to Kolomoisky, and he still has no courage to fight against him.

Let's talk about his closeness with Kolomoisky. There have been pictures in the media that the presidential administration met with a group of oligarchs when the extent of the corona crisis became clear. Do you think this was a good move?

I don't think it's a good move. I don't think that’s a good signal to investors, to society. Because if you want to stay away from oligarchs, you should stay away from oligarchs. There are some obligations that the state should insist on. It’s the state’s work to fight coronavirus.

And you can't say that "okay, this oligarch is now in charge of some region", because [that means] we're coming back to good old times during the middle age when there are some feudalists who occupied some regions and controlled [them]. And do you remember these times of Louis XIV, for instance, when you sell some places in the government even, people pay you money and now say just taking money from that region, from that direction.

I think it looks just like that. What we got after this meeting is [agricultural tycoon and banker] Oleh Bakhmatyuk's guy called Ihor Petrashka. He's also a former investment banker who worked for Bakhmatyuk for 12 years becoming Minister of Economy and Agriculture. And what we got [is] a huge conflict of interest because on the one hand, Bakhmatyuk is the biggest landlord of the country and when this guy of Bakhmatyuk became, for instance, the head of agrireform, head of agrarian minister during the agrireform, I think it destroyed trust in this reform.

And on the other hand, Bakhmatyuk is now escaping, he's staying somewhere in Austria because he doesn't want to go to prison. And again, his guy became a minister, what signals do you see, send around? So I don't think it was a very good idea, but it's a role Zelenskyy has been playing for the past year, because we do remember when he was taken for instance, ArcelorMittal, the biggest direct investment in Ukraine. It was the only one case of privatization in Ukraine, proper privatization, fair privatization, as these guys were taken out from Zelenskyy's office, from the SBU, because they did not want to participate in his "promo campaign" to buy something for the needs of economy or for Zelenskyy or some medicine, etc. So it's a very, very bad idea. It's a very wrong signal and I can't call it "deoligarchization", I simply observe further oligarchization of Ukraine.

You mentioned the coronavirus and that's going to have an effect on finance and investing like every other area of life. Did the coronavirus and its threat to Ukraine actually help to get this banking bill passed though? A lot of people are wondering why everyone was dragging their feet. In November, Zelenskyy had a very, very strong mono-coalition, a majority in the parliament. Right now that seems to be breaking down. And on March 30, he personally showed up to act as party whip to make sure his new ministers got elected and he was there watching very carefully to make sure that the IMF’s first tranche would flow by pushing legislation through. He's losing the cohesion of his party, he can't count on the votes anymore. Why didn't he do this in November? Is this a sign that he wasn't sure?

I think you're completely right. It's not a matter of the coronavirus, it's a matter of the crisis. Because if you want to push Ukrainian authorities to implement some reforms or implement some unpopular things – you need a crisis. You need time, and Ukraine can't take money anywhere else except for the IMF. Because in November there is a huge demand for local debt, a lot of foreign investors who are buying local and bringing US cash dollars to Ukraine. And you have an idea, or you don't need the IMF anymore? Yeah, because you can muddle through without the IMF.

READ MORE: “Ukrainian Government’s Lack of Leadership Fuels Coronavirus Crisis” – Author Yuri Polakiwsky

But now it's impossible, now there is only one creditor that could give money to Ukraine – IMF, World Bank, European Union, and now you are forced to do it, you're forced to do reforms.

So I think thanks to coronavirus, we’ve now got land reform. Very, very limited land reform with a lot of things that went away from it and it's not gonna be effective land reform, etc. But still, we have it.

Thanks to coronavirus we got his first reading of the "Anti-Kolomoisky" bill. I truly believe that without the crisis, without coronavirus, we wouldn't see it. We wouldn't see the president in the Rada who forced MPs to vote for what the IMF asked for – and to be honest – what Ukraine needed. Because the president was very polite with oligarchs.

For our international viewers who might not be familiar with what this banking bill means, could you briefly summarize why it was even brought up and why the IMF is demanding this?

There is a long-long story of the nationalization of PrivatBank. It was the biggest private bank in Ukraine, but it was working like a paranoid. Former owners of this bank Kolomoisky and his partners were taking money away. So it was completely insolvent.

The IMF with National Bank was forced [to do] a one year nationalization of this bank. It was like a huge step in banking system reform. And it was part of the IMF program, it was part of memorandums, the nationalization. And Ukraine even got one tranche just due to nationalization of PrivatBank, as a result of the nationalization of PrivatBank.

READ MORE: Will Ukraine's Newly Created Land Market Finally Unlock IMF Support?

That's why it's very important for the IMF – because it's a part of the program, because it's a part of reform. And now when IMF sees that somebody wants to cancel some parts of reform lately and when IMF is asking "you see, guys, you should go to London court, you should force to take some $5.5 billions of money from oligarchs to Ukrainian budget", but they see just opposite movements and just opposite movements that former owner Kolomoisky due to huge links to Zelenskyy could take control over this bank and cancel all the court cases for instance in London and the IMF is very disappointed with it, and all our Western partners are very disappointed and that's why they pushed this "Anti-Kolomoisky" law? This is why it's very important because it's just completely the [opposite direction] from reforms if you would let Kolomoisky take control over PrivatBank, and to sort of cancel a huge part of bank system reform, a huge part of IMF cooperation program.