NCSEJ WEEKLY TOP 10 Washington, D.C. October 4, 2019 Zelensky can’t have ‘favorite’ oligarchs By Timothy Ash Kyiv Post, October 3 https://www.kyivpost.com/article/opinion/op-ed/timothy-ash-zelensky-cant-have-favorite- oligarchs.html?cn-reloaded=1 The National Bank of Ukraine said there are “no fundamental reasons” for the hryvnia’s recent decline, from roughly 24 to the dollar to close to 25 on Oct. 3. I hate it when central banks come out with this kind of defense. It is a market. There are buyers and sellers. Currencies go where they go. Ukraine has a current account deficit, the basic balance is still negative, and its recent appreciation has been driven by a weight of hot money inflows, and amid concern around the stalled International Monetary Fund lending program, some of those are now leaving. So the currency weakens, that is fundamental. It’s good that the NBU is smoothing the outflows, which will help reassure portfolio investors over the longer-term. So they can still manage this, and they are incredibly capable. I have total faith in them on this one – that is unless we see more cock-ups on the PrivatBank and rule of law front by their political masters in the presidency. But, given the growth story, the hryvnia appreciation had probably gone a bit too far. It’s better for the hryvnia to be a bit weaker. The NBU’s ability to defend the hryvnia is not unlimited, so they want to take the froth off the depreciation but would not want to stand in the way of the trend. I think it is important to get a resolution in terms of the PrivatBank issue and hence the relationship with the IMF. That is out of the NBU hands at this point in time, in the courts and the presidency. Let’s not beat around the bush. The hryvnia is weakening because of concerns around PrivatBank, which cost the taxpayers $5.5 billion allegedly because of bank fraud, the role of former co-owner, billionaire Ihor Kolomoisky, and what all this means for the relationship with the IMF. Investors are nervous. So far President Volodymyr Zelensky and Prime Minister Oleksiy Honcharuk have fallen well short in terms of their re-assurance. Now are concerns over PrivatBank, Kolomoisky and the relationship with the IMF “fundamental” reasons? I tend to think they are. This is pretty fundamental in my mind to the Ukraine story. It needs sorting or I think we will see more portfolio outflows, more pressure on the hryvnia, loss of reserves, and less scope for the NBU to cut policy rates to stimulate the economy and get growth going. The NBU might have to hike policy rates, if this all is not resolved. Zelensky and Honcharuk need to wake up to the risks posed by the PrivatVank issue to macroeconomic financial stability. Just to recap, never has a Ukrainian leader had such a wonderful opportunity to bring positive transformational change to Ukraine. If he cocks up, he will have to bear that cross for a very long time. Unforgivable, in my mind, if he cannot get all this, and understand that he needs to put proper distance between himself and all oligarchs. He cannot have “favorite” or “Special K” oligarchs. Will Ukraine make a deal with Kolomoisky? Three things to watch By Oksana Bedratenko Atlantic Council, October 2 https://www.atlanticcouncil.org/blogs/ukrainealert/will-ukraine-make-a-deal-with-kolomoisky-three- things-to-watch/ The IMF mission left Kyiv last week empty handed. Most had expected it to finalize a $6 billion program. This week Oleksandr Danylyuk, the reformed-minded head of the National Security and Defense Council, resigned. The two events are tied together by oligarch Ihor Kolomoisky. Danylyuk pointed to an increased risk that the nationalization of Ukraine’s largest bank PrivatBank will be reversed. In December 2016, the state took Kolomoisky’s bank, after a $5.5 billion hole was revealed. Kolomoisky’s increased influence is also a concern for the IMF. In a tweet, Ukraine’s central bank governor Yakiv Smolii said IMF talks will resume this month in Washington and will center around “ending the pressure on reformers and preserving financial stability.” (The governor is referring to recent attacks on previous governor Valeria Gontareva who nationalized Kolomoisky’s bank.) Smolii also mentioned “court cases in Ukraine and beyond” in an apparent reference to PrivatBank cases, where important developments are expected this month. The no-news IMF visit and Danylyuk’s resignation shocked Ukraine’s eurobond market, putting pressure on the local currency exchange rate and gave a lot of investors indigestion. It’s difficult to find a more controversial figure in Ukraine than Kolomoisky. A ruthless businessman during the 90s who is often blamed for raider attacks and hijacking companies, Kolomoisky underwent a radical and patriotic remake in 2014. In response to the call from then head of administration Oleksandr Turchynov for influential people in eastern Ukraine to assist the country at a moment of crisis, Kolomoisky stepped up and became the governor of Dnipropetrovsk oblast. A person connected to him headed Odesa oblast. They were able to mobilize resources, consolidate public support for Ukraine, and provide help to the military, thereby playing a huge role in thwarting Putin’s Novorossiya project. Kolomoisky fell out with the former president and his bank was nationalized at the end of 2016. He went abroad, living in Switzerland and Israel. Herbst joins NPR to discuss why Ukraine is strategically important to America’s foreign policy By John E. Herbst Atlantic Council, September 30 https://www.atlanticcouncil.org/insight-impact/in-the-news/top-coverage/herbst-joins-npr-to-discuss- why-ukraine-is-strategically-important-to-americas-foreign-policy/ “We have a vital interest in stopping Putin, and the place to do it is Ukraine, where the Ukrainians are fighting. All we need to do is maintain and strengthen sanctions on the Kremlin and provide military assistance and economic assistance to Ukraine.” Ukraine, Georgia, Baltic States form PACE alliance against Russia By Jack Laurenson Kyiv Post, October 2 https://www.kyivpost.com/world/ukraine-georgia-baltic-states-form-pace-alliance-against- russia.html The delegations of Estonia, Latvia, Lithuania, Ukraine and Georgia to the Parliamentary Assembly of the Council of Europe (PACE) announced on Oct. 2 that they had formed a bloc at the Council in opposition to Russia’s unconditional return to the Assembly. The five delegations are from countries that are affected by Russian aggression, occupation or interference in one way or another. They stated that they would continue opposing the reinstatement of the Russian delegation’s voting rights at the Council. PACE, located in Strasbourg, France, is separate from the European Union but acts as the main human rights watchdog for its 28 members, and 19 more countries that are close to the EU. Delegates from the Baltic states, plus Ukraine and Georgia, also announced their intention to stage a boycott of celebrations that are currently taking place for the 70th anniversary of the formation of PACE. Russian diplomats were granted unconditional readmission to PACE on June 25. This sparked a walkout by the five nations — as well as Slovakia and Poland at the time — that have now formed the bloc in opposition to Russia called Baltic+. British delegates have also attended meetings with the new Baltic+ group, including at its formation in Riga, Latvia, and they have reiterated their support for the five countries. In June, PACE delegates overwhelmingly voted – 118 in favor, 62 against and with 10 abstentions – to unconditionally restore Russia’s voting rights. Moscow had been sanctioned by PACE five years ago, losing its voice in the Assembly after its illegal invasion and occupation of Ukrainian Crimea. Since then, it has continued waging war against Ukraine, claiming 13,000 lives in the process. On June 25, Ukrainian lawmakers and diplomats called Russia’s return a “moral capitulation” and said it had discredited the Council, which oversees the European Court of Human Rights and enforces the European Convention on Human Rights. Blame for Russia’s unconditional readmission to PACE largely fell on Germany, France, Italy and Spain whose delegations overwhelmingly backed the Kremlin delegation in returning to the Assembly. “The unconditional return of Russia to PACE undermines the credibility of the organization, and therefore, dissenting national delegations have the right to protest,” said Lisa Yasko, the new head of the Ukrainian delegation to PACE on Oct. 1, as reported by Ukrinform. “That’s why we created this group.” PACE has become a key battleground for European countries affected by Russian aggression or interference, but the Council has also faced allegations of abandoning its principles and losing its moral authority for allowing Russia’s return. U.K. lawmakers and diplomats were vocal in their support for the Baltic+ countries: “I strongly welcome this grouping of countries, all of which escaped the authoritarian dictatorship of the Soviet Union and are now independent and free,” said John Whittingdale, a British lawmaker who chairs the parliamentary committee on Ukraine. “They are on the front line in the hybrid warfare being waged by Russia and I hope that the U.K. will stand alongside them in opposing Russian aggression. As a member of the Parliamentary Assembly of the OSCE I also hope that a similar initiative can be organized there,” Whittingdale added. Roger Gale, a veteran member of the U.K. parliament who leads the 18-member British delegation to PACE, told the Kyiv Post that his team were active behind the scenes in support of the Baltic+ countries, and that he had joined the new group as an associate member.