Ukraine's coffers 'robbed' of US$37b

Last updated 17:14 28/02/2014
Viktor Yanukovich Kiev residence Ukraine
Reuters

EXTRAVAGANCE: People look through windows of the residence of Ukraine's President Viktor Yanukovich.

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Ukraine's new prime minister said on Thursday loans worth US$37 billion ($44 billion) had gone missing from state coffers during ousted President Viktor Yanukovich's rule, and warned that unpopular measures were needed to salvage the economy.

With the hryvnia currency in freefall and concerns about the low level of foreign currency reserves growing, Arseny Yatseniuk said the country urgently needed loans from the International Monetary Fund, which is visiting Kiev next week.

The scale of alleged theft implied by Yatseniuk in a speech to parliament was jaw-dropping, even for a population now used to tales of Yanukovich's extravagance and lavish lifestyle, including his luxury residence outside Kiev.

The average salary in Ukraine is around US$500 a month.

In addition to the missing US$37b, Yatseniuk said as much as US$70b had been sent out of the country during Yanukovich's three-year rule, although he did not make clear how much of this capital flight was illegal.

"I want to report to you - the state treasury has been robbed and is empty," he said before the national assembly voted him in as head of a national unity government.

"Thirty-seven billion dollars of credit received have disappeared in an unknown direction ... (and) the sum of 70 billion dollars was paid out of Ukraine's financial system into off-shore accounts."

At today's rate, US$70b is equal to about half Ukraine's gross domestic product in 2013.

Only 4.3 billion hryvnia - US$430 million - was left in government accounts, Yatseniuk said, although the central bank's foreign currency reserves stand at US$15b.

TOUGH MEDICINE

Shortly after he spoke, the Swiss government said it would order banks in the country to freeze any funds found to be linked to Yanukovich.

In Ukraine, the situation was so grave that there was no choice but to take "extraordinarily unpopular measures," Yatseniuk said, looking around the solemn faces in parliament as he listed the depth to which the economy has sunk.

An IMF fact-finding team is to visit Ukraine in the coming days, in response for Ukraine's request for help, managing director Christine Lagarde said.

A former economy and foreign minister, and ex-deputy head of the central bank, Yatseniuk's immediate task is to draw up an anti-crisis plan and secure international aid to prevent a default and shore up the hyrvnia.

Finance Minister Oleksander Shlapak suggested Ukraine wanted a US$15b aid package from the IMF.

Acting President Oleksander Turchinov had said at the weekend that the country of 46 million needed more than US$30b over two years. The previous government had said last year that US$20b was needed.

The fate of a US$15b bailout package agreed with Russia in December is not clear, with Moscow having so far released only US$3b of the sum promised. Uncertainty also hangs over an agreement that reduced the amount Ukraine pays Russia for gas.

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A previous IMF financial package, worth US$15.5b, was frozen in 2011 after the Ukrainian government reneged on the terms, balking at putting up energy prices, a move that would have been unpopular with voters.

Shlapak and Yatseniuk said IMF money would help to stabilise the hyrvnia. The currency has been falling for weeks - losing more than a fifth of its value - but the drop has accelerated since parliament stripped Yanukovich of his powers and he fled the capital. His whereabouts now are not known.

Neuberger Berman said in a research note that many hurdles lay ahead for the Ukrainian economy.

"We are also unsettled by the seemingly endless increases in headline figures needed for Ukraine to avoid default in two years," it said.

"To us, this trend fosters doubt as to the commitment of future leadership to undertake much-needed reforms."

- Reuters

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