Davos economic forum marred by allegations of Kyiv's misuse of funds (02/06/00)

Davos economic forum marred by allegations of Kyiv's misuse of funds

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's President Leonid Kuchma traveled to Davos, Switzerland, on January 28-30 for the annual World Economic Forum to talk about the beginning of serious economic reforms in Ukraine and to cajole foreign investment for the country. His effort was sidetracked, however, as allegations surfaced that members of his administration had bilked the International Monetary Fund out of more than a half billion dollars in credits in 1997.

As the president arrived at the economic forum, the respected London newspaper the Financial Times on January 28 was reporting accusations leveled by Pavlo Lazarenko, a former prime minister of Ukraine, that cronies of President Kuchma had embezzled and then laundered $613 million dollars of IMF money in December 1997.

Mr. Lazarenko, who has been indicted on charges of financial improprieties in Switzerland and Ukraine, has been in a U.S. detention facility since he entered the country with improper documents and requested political asylum .

According to the Financial Times article, which quotes Joel Bartow, an ex-FBI agent whom Mr. Lazarenko has retained as part of his defense team, Mr. Lazarenko is ready to address the U.S. House of Representatives to divulge the details of his accusations. Interfax-Ukraine reported that Reps. Dan Burton (R-Ind.) and Curt Weldon (R-Pa.) are discussing Mr. Lazarenko's testimony with his attorneys.

The Financial Times noted that Mr. Lazarenko's testimony could stall his extradition to Switzerland as well as complicate the resumption of the IMF loan program to Ukraine.

According to Mr. Bartow, $200 million was deposited in bank accounts in Belgium and Switzerland by several of President Kuchma's aides, including National Deputy Oleksander Volkov, who played a key role in the president's recent re-election campaign. Belgian authorities independently have been investigating the financial dealings of Mr. Volkov in the country for several months now.

Mr. Lazarenko alleges that the IMF funds were diverted by President Kuchma's associates from the National Bank of Ukraine and deposited in "speculative government bonds reaping interest rates of up to 66 percent," reported the Financial Times, according to Interfax-Ukraine.

The allegations come at a critical moment for Ukraine because it is scheduled to repay some $1 billion in yields from government bonds that mature in March. The country must either find the money or reach agreement to restructure the debt. Ukraine faces default on its failure to repay Chase Manhattan Bank an $18 million note that reached maturity the week of January 24.

President Kuchma said before his departure that his discussions in Davos, where many of the world's political, financial and commercial leaders gather annually to ascertain the state of the global economy, might lead to major investment deals with representatives of the many multinational corporations on hand. He also wanted to continue discussions on the next credit tranche with IMF directors and to begin negotiations with leading bankers on the restructuring of Ukraine's large debt load.

But as the allegations of financial improprieties surfaced, the president was forced to spend a good portion of his time smoothing the ensuing political turbulence and defending his administration and the National Bank of Ukraine.

Prior to a meeting with IMF Deputy Managing Director Stanley Fischer on February 29, Mr. Kuchma called Mr. Lazarenko's charges "totally absurd" and "a provocation against Ukraine's president, its course towards economic reform and its cooperation with the IMF."

[The Embassy of Ukraine in Washington on February 1 released a statement regarding the allegations. It appears on the right.]

During their meeting, Mr. Fischer and the Ukrainian president agreed to an international audit of the use of IMF funds received by Ukraine in 1997, which will be carried out by the auditing firm PriceWaterhouseCoopers, the results of which they agreed to publish in the press. They also discussed the extension of the next credit tranche, which is expected in March.

President Kuchma's press secretary Oleksander Martynenko said afterwards that the sides had reached agreement on all the issues that stood before them.

"There are no unresolved questions in Ukraine-IMF relations, and we can be optimistic about further cooperation, irrespective of the publications of the mass media," said Mr. Martynenko.

The private audit that the two sides have agreed to conduct will be the second of its kind. The NBU passed a previous financial audit in 1997.

Ukraine's Cabinet of Ministers has been drawn into the affair as well because its newly appointed prime minister, Viktor Yuschenko, directed the NBU until December 1999.

Mr. Yuschenko's press secretary, Natalia Zarudna, said that in consultations with the NBU she had been assured that the earlier independent audit had reviewed all operations conducted by the NBU in 1997 and had found "no crime there."

In May 1999 Mr. Yuschenko came under heavy criticism from the Banking Committee of the leftist-dominated Ukrainian Parliament for questionable investments of the NBU's currency reserves in a Cypriot off-shore account of the Credit Suisse-First Boston Bank. After a parliamentary hearing, during which Mr. Yuschenko was charged with not reporting the whereabouts of $85 million, a floor vote cleared the bank director of any improprieties. Subsequently, Mr. Yushchenko reported the return of the full investment plus profit.

Despite the distractions, President Kuchma managed to stick to his schedule in Davos and meet with leaders of nearly a dozen multinational corporations, as well as Mr. Fischer of the IMF and Mike Moore, the director-general of the World Trade Organization. According to Interfax-Ukraine, Mr. Moore gave assurance that Ukraine would succeed in joining the organization.

The president also met with the president of Switzerland, Adolf Ogi, and attended a private reception for heads of state hosted by U.S. President Bill Clinton.

Ukraine reacts to Lazarenko's allegations

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