Washington keeps a keen eye on Ukraine (04/16/00)

Washington keeps a keen eye on Ukraine

by Michael Sawkiw Jr.
Ukrainian National Information Service

WASHINGTON - Following the postponement of Ukrainian Prime Minister Viktor Yuschenko's trip to the United States and allegations in the press regarding the "misreporting" of International Monetary Fund (IMF) funds by the National Bank of Ukraine (NBU), the U.S. government - both the Clinton administration and Congress - have kept a watch on Ukraine.

In recent weeks Ukraine has been a focus of Washington's attention, ranging from the hearings in the House of Representatives Banking and Financial Services Committee and Foreign Operations Subcommittee of the Appropriations Committee, to statements issued by the State and Treasury departments.

After Mr. Yuschenko postponed his first official working visit to Washington as Ukraine's newest prime minister in the wake of the mine explosion in Krasnodon, press reports speculated about other reasons for the postponement.

Concurrent with Prime Minister Yuschenko's trip to Washington, which had been scheduled for March 14-16, the IMF issued a statement about irregularities it has identified in the Ukrainian central bank's handling of IMF funds. The IMF statement, titled "Allegations About the Use of Ukraine's International Reserves," noted that the IMF was "aware of a number of transactions affecting the NBU reserves between 1996 and 1998 that could have given a misleading impression of the size of Ukraine's usable reserves."

The IMF was aware of the NBU's "misreporting" of reserves as early as the Asian and Russian economic crises in summer 1998, but failed to act upon its preliminary findings.

Joining the attack against the NBU and Ukraine was the U.S. Treasury Department. In a stern statement released on March 14, by Edwin Truman, assistant secretary for international affairs, said: "We are deeply concerned about the information in yesterday's IMF statement, which describes the past management and misreporting of Ukraine's reserves."

Though briefly acknowledging the recent progress in the past several months under Prime Minister Yuschenko's leadership, the department spokesman was cautious about the allegations and stated: "We [the Treasury Department] will review the results of this investigation in order to determine what additional controls are needed to prevent further inappropriate reserve management practices."

Following various news reports earlier that week in which a U.S. administration official was quoted as saying that the Ukrainian government needed to "clean up this problem" (The New York Times, "Ukraine Leader Cancels U.S. Visit Over IMF Complaint," March 16), the State Department also issued its own statement regarding the postponement of Prime Minister Yuschenko's trip, underlining that, contrary to the Times report, the visit was not canceled. State Department spokesman James Rubin on March 16 expressed the department's concern over the IMF allegations, but steadfastly welcomed "the Ukrainian government's commitment to cooperate fully in the investigation."

Furthermore, while the Treasury Department was cool regarding the economic reform agenda of the new Yuschenko government, Mr. Rubin underlined that the State Department remains "firmly committed to supporting President Leonid Kuchma and Prime Minister Yuschenko's efforts to advance the reform agenda in Ukraine, a strategic partner of the United States, and are hopeful that the prime minister's visit can be rescheduled in the near future."

Immediately following the flap in the press regarding Ukraine, various representatives of Ukrainian American organizations and foundations met with Stephen Sestanovich, ambassador-at-large to the newly independent states (NIS). In a continuing dialogue with the community representatives, Ambassador Sestanovich relayed the commitment of the State Department to Prime Minister Yuschenko's reforms. He was also interested in the Ukrainian-Americans' perspective on the situation, as well as to provide insight on the betterment of U.S.-Ukrainian relations.

Meanwhile, on Capitol Hill the Banking and Financial Services Committee held a hearing on March 23 to examine the role of international financial structure. The hearing was primarily a review of IMF and World Bank procedures and necessary reform within their institutions. Included as witnesses at the hearing were Secretary of the Treasury Lawrence Summers; members of the International Financial Advisory Commission (better know as the Meltzer Commission); and James Healy, managing director for Credit Suisse First Boston (CSFB).

In his opening statement, Chairman Jim Leach (R-Iowa) stated the dawn of the 21st century "would appear to be a particularly propitious time for the U.S. to review our policies toward the international financial institutions." He also commented on "serious allegations that give rise to questions about the integrity of the National Bank of Ukraine, the role of a major international bank [CSFB], and the credibility of the IMF."

Rep. Marge Roukema (R-N.J.) questioned the transparency of IMF funds during the Asian and Russian financial crises. Mentioning the allegations regarding Ukraine, Rep. Roukema asked Secretary Summers what types of contacts exist between the IMF and the Treasury Department, and whether the Treasury Department had any knowledge of IMF activities in Ukraine as they became known to IMF officials in August 1998.

Though focusing most of his testimony on the international financial institutions' role in the new global economy, Secretary Summers briefly mentioned the allegations regarding the IMF and the NBU. "In addressing the issue of whether to support further IMF financing for Ukraine," he noted in his written testimony, "we [the Treasury Department] will review the results of the audits in order to determine what additional controls are needed to prevent future inappropriate reserve management practices and help ensure that future IMF resources are used for their intended purpose."

In response to several questions regarding the IMF's role in Central and Eastern Europe, Secretary Summers acknowledged that "the glass is neither half full, nor empty," meaning that all the necessary reforms have not been accomplished. He added that important successes have been accomplished in transitional economies such as Poland, though "integrity of the use of funds in Russia and Ukraine" must be adhered to through the use of ongoing external audits and new procedures for verification of funds transferred.

The second set of panelists, representing the Meltzer Commission, focused their testimony on the role of international financial institutions in the new global economic climate.

During the third panel, CSFB's representative, Mr. Healy, testified about three major aspects of the IMF allegations against the National Bank of Ukraine.

"First," stated Mr. Healy "all of the transactions were legal and were entered into by CSFB at the request of duly authorized officials of the central bank of Ukraine and our other customers." Second, "we do not know of any misuse of IMF funds." Finally, Mr. Healy disputed press allegations that IMF funds were diverted for private use. "In CSFB's limited role in these transactions we have found no evidence that they involved a diversion of NBU funds to unauthorized third parties."

In concluding his statement before the Banking and Financial Services Committee as CSFB's global head of emerging markets, Mr. Healy underscored that all of CSFB's transactions with the NBU had been completely appropriate.

Prior to the Banking and Financial Services Committee hearing, Ukrainian National Information Service Director Michael Sawkiw Jr. met with the majority staff to discuss the concerns of the Ukrainian American community. In particular, he mentioned the coincidence of media reports regarding the "misreporting" of IMF funds and the planned arrival of Prime Minister Yuschenko.

Soon afterwards a Foreign Operations Appropriations Subcommittee hearing debated the Fiscal Year 2001 foreign aid bill. On March 30, several members of the Congressional Ukrainian Caucus (CUC) and UNIS Director Mr. Sawkiw appeared before the subcommittee to testify on behalf of continued U.S. foreign assistance to Ukraine.

Prior to their appearances before the subcommittee, the Congressional Ukrainian Caucus submitted its written testimony signed by the co-chairs of the CUC. The caucus members write: "The earmarks of aid provided to Ukraine in fiscal years 1996-2000 have been a decisive factor in encouraging historic progress such as the ratification of a new Constitution, the stabilization of Ukraine's currency, increased privatization of state-owned enterprises, and the continuing effort to build a law-based, free-market economy through a new Civil Code, which will provide the foundations for private ownership rights and contractual relationships."

The caucus affirmed that U.S. foreign assistance to Ukraine "could transform the face of Europe to come [and] should not be taken for granted, but instead should be matched with tangible evidence of U.S. support."

During the hearing, Congressional Ukrainian Caucus Co-Chairs Reps. Bob Schaffer (R-Colo.) and Marcy Kaptur (D-Ohio) accentuated the reform efforts being undertaken by Prime Minister Yuschenko and his commitment "to reduce needless government barriers and redundant licensing procedures."

Rep. Schaffer referred to Secretary Madeleine K. Albright's portrayal of Ukraine earlier this year as one of four countries to receive increased U.S. support in the upcoming year. [Though Secretary Albright specified that "It is in America's national interest that Ukraine succeed," President Clinton's budget request for FY 2001 is lower than that appropriated to Ukraine in FY 2000.] "Our continued support for Ukraine," stated Rep. Schaffer, "will enhance its ability to address many of the remaining issues inherent to establishing a solid investment climate - encourage you to demonstrate your strong support for a continuation of Congress' successful policy toward Ukraine for an additional year."

Mr. Sawkiw, who also testified before the House of Representatives Foreign Operations Subcommittee of the Appropriations Committee, highlighted the successful reforms that U.S. foreign assistance has helped to accomplish in Ukraine. "After years of economic stagnation in Ukraine," Mr. Sawkiw said "industrial output has increased nearly 7 percent, it has stabilized its currency following the near collapse of the Russian and Asian financial markets, and has instituted a non-deficit budget earlier this year."

Mr. Sawkiw commented that the rewards of continued U.S. foreign assistance to Ukraine are limitless, given the reform agenda currently being implemented by Ukraine's reformist prime minister, Mr. Yuschenko.

In his recommendations to the members of the Foreign Operations Subcommittee, the UNIS director concentrated on five key reform programs in Ukraine: comprehensive commercial law reform, institutional and administrative reform in Ukraine; support for revitalization of the agricultural and energy sectors; law enforcement bodies' struggle against corruption, and continued development of democratic reform and democracy-building institutions.

| Home Page |