The Accounting Chamber of Ukraine has completed its audit of how World Bank loans were used in 1997-1999. It was revealed that a substantial part of the investment projects loaned money under government guarantees were sure losers from the start. 11 out of 14 enterprises which had secured loans either cannot or will not repay them. As a result, the Cabinet of Ministers had to intervene and pay the World Bank 9.5 million dollars from the budget. According to the Accounting Chamber, the enterprises that failed to successfully implement their investment projects also be unable to clear their public debts due to their financial weakness.
The World Bank loans had been received by businesses under the Ministry for Fuel and Energy jurisdiction. It will be recalled in this connection that the coal miners, now staging a hunger strike outside the cabinet building, demand being paid a little over one million hryvnias. In the aggregate, the Kiniahinsk and Partisan mines, some of whose workers are trying to bring pressure to bear on the government, are still to receive UAH 8 million in back wages. Lack of control over the utilization of state- guaranteed finances could now hurt the current government. The miners’ demands are increasingly taking on a political coloration.
The Accounting Chamber’s official report does not name the companies that have simply eaten their loans now to be repaid at taxpayer expense. The Prosecutor General’s Office also failed to tell us whether it planned to carry out any investigative actions against the insolvent borrowers because the government had displayed no initiative to this effect. The impression is that, but for the Accounting Chamber, hardly anybody would know about what amounts to theft of state money. A strange veil of secrecy over the use of foreign loans suggests there may be a link between those who used the money and those who approved the guarantees on behalf of the state. Undoubtedly, the situation deserves the attention of law enforcement.
Meanwhile, the World Bank is drafting new projects to be carried out in Ukraine. Agribusiness enterprises expect a $250 million loan package to be approved by year’s end. Nothing is now known how these loans will be used. Obviously, such a large investment project must have been drawn up over a substantial period of time. But the government thus far prefers to make an all out effort to fulfill the loan conditions. In fact, this is probably the main reason why Ukraine fails to effectively utilize foreign loans. Of course, the government may have some ideas about how to spend $250 million, but neither the farmers nor journalists are aware of it so far.
The World Bank itself has not yet publicly voiced its concern over the ineffective utilization of its loans in Ukraine. Only occasionally do its managers point out the incorrect financing of one program or another. This occurred, for example, in the case of the coal mine closure program. The money earmarked for the creation of new jobs for the miners laid off never reached its official destination. At any rate, the miners, now striking in Kyiv, have heard nothing about new businesses set up on World Bank money. Again mystery and again the funds disappear under enigmatic circumstances. Will the new “ineffective” loan be paid off at taxpayer expense yet again?
A prominent peoples’ deputy once said that all Ukrainian millionaires had made their money in Russian natural gas. There seems to be another loophole. Foreign loans are as a rule channeled to enterprises unable to put up any collateral or other security. And when government bodies try to return the “utilized” millions, it turns out that the debtor has only a couple of chairs and desks on his balance sheet. Now the government no longer offers direct loan payment guarantees to commercial entities. But if the Cabinet of Ministers is the recipient of a foreign loan, the money laundering scheme devised for a certain program does not even need to be changed. All that is needed is a reliable cover, opacity in the distribution of funds, and no signs of concern from the World Bank.
