Does the government really want reforms?

Unless we fight corruption and abuse of power by the law enforcement, we have zero chances of attracting investment and achieving economic growth

Unless we fight corruption and abuse of power by the law enforcement, we have zero chances of attracting investment and achieving economic growth

Serhiy Rybalka,
Member of Parliament of Ukraine
Member of Verkhovna Rada Committee on Financial Policy and Banking

Throughout the past three years, I worked as the head of the financial and banking committee at the parliament. During this time, we managed to fulfill many policy ideas. However, an even larger share of those never made it to the agenda due to the unwillingness of the government to implement real reforms, political pressure, as well as desire to concentrate power and have the control over corrupt money flows. Unfortunately, nobody wants real reforms that would spur economic growth. Today, I would like to cap off this period of my parliamentary work and turn a new page.

No man is an island?

It is no secret that Oleg Lyashko's Radical Party delegated me to head one of the key parliamentary committees. The moment coincided in time with one of the largest financial and banking crisis in the world that Ukraine is still struggling to overcome. The collapse of the banking system and loss of trust have been, in the strategic sense, no less of a tragedy for our country than the loss of territory and industrial potential. Fast-paced devaluation of the currency, siphoning hundreds of billions of hryvnias out of the banks, elimination of half of the banks in the market and financial losses for citizens and businesses - those issues only constitute the tip of the iceberg.

Having worked in the business since I was 16, I have always had clear plans for development, both tactical and strategic. When I started delving deep into the peculiarities of policy and politics in the banking and other sectors, it turned out that long-term action plans were non-existent. Our 'boat' is navigating a fierce storm without a compass.

In 2014, we had to not only assess the actions of National Bank and other agencies. We had to assess actions taken during the crisis when any mistake could entail fatal consequences. We started by organizing parliamentary hearings in early 2015 and gathering the best Ukrainian and foreign experts.

Back then, I had already come to notice that the history of crisis mitigation in various countries confirmed that the government had three key tasks. Firstly, quickly eliminating hopelessly damaged banks and helping survive the rest. Secondly, strengthening the system to reduce future risks. And thirdly, immediately taking measures to help the banks address the non-performing loans problem and reduce their share.

Later, it became obvious that the Comprehensive Plan for Reforming Financial Sector elaborated under the auspices of NBU, did not correspond to the current realities. It was written during the 'peaceful times' and did not at all reflect the depth of the crisis. In order to help the government get the banking system our of the horrible crisis, we united the efforts of different fractions and groups in our committee. We acted on all the NBU's and government's initiatives as fast as it was possible. Ten laws were passed within the shortest possible time. First of all, the ones on the fundamental increase of the banks' responsibility for their bankruptcies and on the expansion of the National Bank's authority. Despite the fact that the draft bills in question were provided to us last minute, we often worked at night to make sure there were no delays and save the financial system of our country.

Back then, the need for creating a new roadmap had already become obvious. So we came up with an to gather experts and produce our own vision of the Strategy for the Development of the Banking Sector. We were the first committee to elaborate a document of this kind, engaging the leading economists, bankers, and academics. Firstly, we analyzed, using quantitative data and graphs, some systemic failures in the NBU's and the government's work that led to a significant aggravation of the financial crisis of 2014-2015. Secondly, we presented a clear vision of the vector for development. In particular, for strengthening the financial system and encouraging an increased lending to businesses, supporting the prioritized sectors of our economy, transforming the state-owned banks into institutions for growth, following the example of the Asian Tigers. At the same time, the Ministry of Finance 'has not had the time' to develop the strategy for the state-owned banks, even though this sector is in a dangerous state. As a result of the massive bank failures and the nationalization of PrivatBank, over 60% of the banking system ended up in the hands of the state. Meaning, under the Ministry of Finance's management. As a result of the crisis, Ukraine has become a global anti-leader in terms of the share of non-performing loans, which is currently at 57%. Every second hryvnia borrowed is never returned. And for the state-owned banks, the situation is worse. The share of non-performing loans in those has reached 77%.

Futile attempts to establish productive dialogue

Gradually, all committee members representing various fractions have reached the same conclusion. That nobody was willing to discuss our constructive criticism with us. The government only wanted obedient executors. The head of NBU would not show up to the committee meetings and ignore our invitations for months. And the 'purge' of the banking system was becoming more and more like a disguised redistribution of property.

We fiercely opposed the massive elimination of banks from the market, done in the manual mode. Some relatively healthy institutions were eliminated from the market overnight, while others were given months to suck in more funds in deposits and siphon them out. And none of the owners or officials have borne the responsibility.

Of course, National Bank did not like our criticism since they have always viewed the parliamentary committee as an obedient ally. And even this format of cooperation has not always been beneficial for the ordinary citizens. For instance, the committee approved a presidential draft bill on providing the 100% guarantees for deposits made to the state-owned banks in an awful hurry. Yet, the document passed by the parliament has not been signed into law by the president for nearly a year now.

We believe that many have come to confuse the independence of NBU with the lack of accountability. Instead of cooperating in a constructive manner - as central banks and parliaments do throughout the world - National Bank led by Hontareva decided to ignore our committee. The National Bank's attempts to avoid accountability before Verkhovna Rada had nothing to do with the globally acknowledged best practices. The leaders of all central banks in the developed countries report to the corresponding parliamentary committees on a regular basis. In some countries, this is done quarterly. Ensuring accountability is the second key function of the parliament after the legislative one. That is why criticizing NBU is our direct responsibility. And the central bank is prohibited by law to make political decisions.

However, none of this prevented the committee from establishing, throughout the past three years, an effective dialogue with the banking community, non-banking regulators, organizations uniting consumers of financial services and even some of the lower-level NBU officials. We consider as our important achievement bringing the Council of NBU back to life. The Council is the key supervisory and expert agency that has the authority to evaluate the regulator's actions, approve Monetary Policy Guidelines and the central bank's budget. The first open competition for the post of the Council members in the history, conducted by our committee allowed to select good, competent candidates.

Although, at the stage of consideration of the candidates in the parliament, it became obvious that the government only wanted obedient executors. This was demonstrated by the multiple attempts to substitute the candidates during the vote in the parliament. I prevented a last-minute attempt to falsify the outcome of the vote. Even then, later they did manage to replace one of our good candidates.

The committee has faced the sabotaging of reforms on a regular basis. We had seen multiple failures to hold financial and banking days when the parliament was supposed to vote for the draft bills critical for implementing real reforms in the banking sector. Whether due to the insufficient understanding of the topic or due to the influence of the lobbyists, the deputies failed to complete several votes, deferring action on the work of dozens of experts.

This happened with the bill on National Bank where we proposed to increase transparency of the regulator, better protect the rights of the lenders and the consumers of financial services. This also happened with the bill on the pawn shops, on the insurance and many other documents elaborated and sponsored by our committee.

The issue of the borrowers in foreign currency has been left unresolved. The bill passed in the three (!) hearings was vetoed by the President. The new bill, even though it had been agreed upon with the IMF and NBU, has not been put on the agenda for months. Instead of approaching the problems of the people with a constructive attitude, some of our fellow parliamentarians have only strived to win more electoral points.

We also viewed the NBU's unwillingness to participate in supporting the economic growth as completely unacceptable. And the calculations made by experts demonstrate that excess attention to the certificates of deposit sucks the resources out of the market, while they should instead be directed towards lending to businesses, supporting high-tech industries and creating new jobs.

NBU attempted to accelerate the increase in the minimum statutory capital for the banks. The new requirements were impossible to comply with. Had not we, together with the banking community, stopped those attempts, additional several dozens of Ukrainian private medium-sized banks could have been closed. Instead of learning from the international experience and letting the small but efficient, mostly Ukrainian-owned institutions grow, National Bank decided to force consolidation of the industry. It appeared profitable for the large transnational chains - obviously less flexible than needed to satisfy the needs of local businesses. And the latter ought to become the foundation for the emerging middle class in Ukraine.

An illustration of the government's attitude towards financial reforms was the recent consideration of the draft bill on the single credit registry. The passing of this bill is one of the conditions for obtaining the loan from IMF and the macro-financial assistance from the EU. Creation of the registry will help identify crooks early, at the stage of their approaching financial institutions for another loan and would significantly reduce the risks of the growing non-performing loans share. Thus, it will contribute to the rehabilitation of the banking sector and protection of the citizens' funds. Nearly a hundred other countries have already created similar registries. Our government promised to create one back in 2015, as part of a memorandum signed with the European Union.

When we saw that the government was not going to create anything, back in the summer of 2016, we elaborated our own draft bill in collaboration with experts. We understood that, if introduced by the government, it had more chances for passing. So, we just forwarded the draft bill to them through our contacts at NBU. We wanted results, not the recognition. And only this fall, the government finally turned its attention to the issue, on the eve of the summit of the Eastern Partnership. During the hearing of the document at Verkhovna Rada, none of the representatives of National Bank or the Cabinet of Ministers showed up. The deputy minister of finance appeared in the hall only after my calling on them from the stand.

This is yet another illustration of how cooperation with the Western partners is not as important for the Ukrainian government as they say it is. And almost nobody wants real reforms. If this was untrue, how else could we explain the fact that they have lost two years? It is way more fun to divide up the privileges and suck the money from businesses that are still surprisingly surviving in Ukraine today.

And our foreign counterparts understand this very well by now. During my multiple meetings with the congressmen, senators, and journalists in Washington D.C., we have discussed the slow pace of Ukrainian reforms. Frankly speaking, Brussels is signaling an increasing fatigue from the lies of the Ukrainian government. And it is quite embarrassing for our country when we have to negotiate with the IMF or World Bank about the need for them to stimulate internal changes and passing of new legislation. If the Ukrainian government does not want reforms, nor understands their importance for the future generations, no one will force them to.

Summing up my three-year experience as the head of the committee, I am sure that, despite our colossal efforts, the tangible results may only be achieved if there is political will on the part of the NBU management, the Government, and the President. In contrast to the highly professional members of our committee where representatives of various fractions have often united for reforms in neglect of their own political ambitions, the parliament has not demonstrated a strong position in regards to one of the key sectors of the economy. The government does not understand that, without rehabilitation and strengthening of the financial system, without restoring the levels of lending, the long-term lending for investment projects, there will be no proper economic growth. Meaning, nor there will be any growth in the income of the citizens. While the risks of the future crises are growing.

The vote for my resignation from the post of the head of the committee was held at the moment when I was having a surgery at a hospital. I see this as a political reprisal. To keep me from speaking up. The majority of my colleagues at Verkhovna Rada did not even realize what happened. And those who did, they will have to find the strength to look me in the eye.

It is true that, after Radical Party left the coalition in 2015, all committees heads delegated by our fraction wrote letters of resignation. Neither was I going to revoke mine and stick to my post. But they had to let me speak by law.

I plan to continue working at the committee on financial sector reforms. And I see it as one of the important goals to unite the deputies and experts around the importance of accelerating the reforms process.

In the whirlpool of corruption

During our meetings in the U.S., along with the government's unwillingness to implement reforms we talk a lot about fighting corruption. We see the absence of the latter as a critical indicator of a state's success. The corruption of the 'new' government, especially of its law enforcement branch, scares away investors and allies of Ukraine in the trade, cultural, diplomatic arenas - even more now than during the Yanukovych era.

Today, we are witnessing abuse of power by the law enforcement agencies on an outrageous scale. They are executing orders of the high-level politicians for the money of the oligarchs. And the most terrible part here is the absence of any reaction from these agencies' management in response to the new 'watergates' - uncovering of criminal schemes by the former employees of those very agencies.

My family and I became victims of total persecution back in 2013. Many of the deputies and high law enforcement officials have been prone to calling a 'family conflict' what in reality was a huge pressure from the Prosecutor General's Office, Security Service of Ukraine and other law enforcement agencies through the fabrication of multiple criminal charges against me. They have described it as a minor brawl between the father-in-law and the son-in-law.

Actually, that was a little too much for a routine brawl if we take into account all the attempts of murder (against me and the managers of my family's companies), cruel assaults (one person had his ear cut off), constant arrests, searches, threats, massive illegal surveillance for years, wire-tapping, hacking of emails and telephones. Also, a completely unfounded detainment of an innocent mother (who is raising a disabled child on her own) at a Georgian jail by a personal order of a Deputy Prosecutor General, fabricated criminal cases, dissemination of blatant fakes in the media… These are just several crimes from the long list that has been growing in length throughout the past four years. When the oligarchs buy entire departments at the Prosecutor General's Office and Security Service of Ukraine, multiple media and entire fractions at Verkhovna Rada - isn't this a bit too much for a 'family conflict'?

The undermining of reforms by the law enforcement is also illustrated by the fact that allies of the former government of criminals and some of the most hated personalities associated with the law enforcement are engaged in the fabrication of the criminal cases. Recently, a former employee of the Prosecutor General's Office Dmitriy Sus told in an interview to Washington Times and Ukrainska Pravda that the work of the department in charge of the fabricated cases was coordinated by the former deputy minister of internal affairs Vladimir Evdokimov, who is famous for his ties to the criminal world going back to the mid-1990s. And the fabrication of the case on financing terrorism that was used as a formal pretext to remove me from the post of the head of the committee was coordinated by the head of the SBU Department in Sumska region Vladimir Kosinskiy. Formerly, he was one of the closest aids of Sergey Ganzha who organized shootings in Euromaidan and is now wanted on suspicion of state treason. It was Kosinskiy who tried to fabricate a drug case against me back in 2014. And he was caught in the presence of witnesses.

The complete revanche of the traditional political techniques is obvious. And there is no hope for an increase in the welfare for the Ukrainians.

Instead of taking care of the national security and solving real crimes, we only see law enforcement exercising pressure on political opponents or demanding bribes from the businessmen through fabricated criminal cases.

With big money, they engage the media, deputies, experts, ATO veterans in the dirty information wars. And those have to bear the shame of standing together with crooks at the paid-for protests to earn their living. And the sentiments of apathy and utter despair are growing in the society.

However, I am sure that, at some point, we will throw these bastards out of the country, or they will have to go to jail for a long time. In any case, they will have to bear the punishment. We will cleanse our country from the dirt. And only then shall we be able to expect moving forward.

Radical Party has produced a large package of reforms in almost all the key sectors, including the financial sector and the industry. We have to keep pursuing our goal - an increase in the welfare for all Ukrainian citizens through speeding up economic growth.

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