Ukraine’s honeymoon is over. At least as far as foreign investors are concerned. The world awoke on September 17 to the news that the dacha of former National Bank of Ukraine (NBU) governor, and by far Ukraine’s most successful reformer to date, Valeria Gontareva had been burnt to the ground after someone tossed a Molotov cocktail into it in the small hours of the night before.
The arson attack is the latest in a string of attacks on the former central banker, her family and the bank she nationalised, PrivatBank.
A video showing the house on fire was widely circulated on social media but taken down again by the poster within hours as Kyiv scrambled to contain what is by far the most damaging blow to the investment image of the newly elected Ukrainian President Volodymyr Zelenskiy’s administration.
Gontareva emailed a statement to the press in the morning from her hospital bed in London where she is recovering from a suspicious hit and run accident in which she was knocked down by a car on a pedestrian crossing. Police are investigating that incident and suspect foul play.
"Dear colleagues, our house near Kyiv in the Horenichi village was burned. They threw a bottle of flammable liquids through the fence. The house was completely burned down. The firemen did not manage to extinguish it!!" Gontareva said in an email to the press.
A week earlier the car of her daughter-in-law was similarly torched when someone poured gasoline over her Audi parked outside her apartment and set it on fire in the small hours. Gontareva’s apartment in Kyiv was also raided by police last week for unexplained reasons.
“No one knows who these guys are!” Gontareva told bne IntelliNews in an email. “And now they accuse me of treason!” Investigators have tied her to a corruption investigation at the state arms export agency Ukroboronprom, which had dealings with the central bank when she was governor. Gontareva vehemently denies all charges of wrong doing and claims the investigation is a politically motivated attack orchestrated by her nemesis, Ukrainian oligarch Ihor Kolomoisky.
The attacks on Gontareva have been so prominent that the NBU was forced to issue a statement calling on Ukraine’s law enforcement authorities to protect its staff and previous employees.
Gontareva accuses Kolomoisky of acting in “revenge” and he has made thinly veiled threats against her in the local media. Gontareva was responsible for the decision to nationalise Kolomoisky’s PrivatBank in December 2016, following a bne IntelliNews cover story in November, Privat investigations, that exposed a huge hole in the balance sheet. The owners whisked a total of $7bn out of the bank using related party loans to shell companies controlled by Kolomoisky and his partners. (The amount stolen has been updated by PrivatBank’s new management to $7bn, not the $5.5bn that is still widely cited in the press, Anna Samarina, PrivatBank's CFO, told bne IntelliNews in an exclusive interview in June.)
As Gontareva detailed in an exclusive podcast with bne IntelliNews in June (see the text version here), she had been struggling to clean up Ukraine’s corrupt banking sector and bring an end to the stealing by bank owners. She closed more than 100 banks, but as she explained in her interview Kolomoisky caused the most problems and at the time PrivatBank was the largest commercial bank in the country. At one point the NBU forced him to back some related party loans with real collateral, but when the NBU checked PrivatBank’s balance sheet a few weeks later the central bank found all the assets had been removed again. Kolomoisky ignored the terms of the rescue deal agreed with the regulator and eventually Gontareva decided, in cooperation with then finance minister and now head of the National Security and Defence Council of Ukraine Oleksandr Danylyuk, to nationalise the bank.
As bne IntelliNews reported from the Yalta Economic Summit (YES) at the end of last week in Kyiv, where European VIP gathered to enjoy the hospitality of oligarch Viktor Pinchuk, the biggest question mark hanging over Ukraine’s otherwise extremely positive story is what role does Kolomoisky play and what is his relation to Zelenskiy?
The arson attack takes the question to a new level as even Ukraine’s diehard supporters were shocked by the reports and are demanding the Zelenskiy administration acts decisively to nip the growing unease in the bud.
Long time Ukraine-fan Tim Ash, senior sovereign strategist at BlueBay Asset Management, was scathing in his public comments on the arson attack and concurrent reports that the government is considering paying Kolomoisky a reported $2bn in compensation for nationalising his bank.
“Clear now where Zelenskiy and [Prime Minister Oleksiy] Honcharuk stand. A quick wit or hipster suit does not make you a reformer, standing up when it really counts does,” Ash tweeted. “Forget about achieving 40% growth if they don’t make the right decisions now about PrivatBank. The decisions made now will shape the rest of the Zelenskiy presidency.”
“Maybe something was lost in translation and it’s “Servant of the Person” not “People”. Easily done...” Ash scathingly added in another tweet, referring to the name of Zelenskiy’s party and referencing the uncertainty surrounding his relationship with Kolomoisky.
To be fair the Zelenskiy administration was very quick to respond and within hours of the initial reports of the arson attack presidential spokesperson Iuliia Mendel tweeted: “Fire in the home of a former head of the NBU Valeriya Hontaryeva is a brutal crime, the rapid disclosure of which should be a priority of the law enforcement agencies. @ZelenskiyyUa expects the relevant agencies to investigate this provocation as soon as possible.”
However, given Ukraine's appalling record of investigating any crime amongst officials, with zero convictions of anyone senior in the last five years, these statements mean little.
Zelenskiy risks irreversibly tarnishing his reputation over this affair and will burn up a lot of the goodwill he has already earned amongst Ukraine’s donors so far. The new administration has only been in office for three weeks but has already rushed through a raft of bills enacting long overdue legislation. But at the same time Zelenskiy has acted to consolidate his power, which is already starting to raise eyebrows. The Central Election Commission (CEC) has been disbanded. Laws have been introduced to reduce the number of judges on the Supreme Court by a third. Another proposed bill will change the constitution to move control of the anti-corruption agencies from the parliament to the president. And Zelenskiy has yet to give a proper interview to the press. After his first 100 days in office he was interviewed, but by a fellow comedian, not a professional journalist from one of the country’s many newspapers.
Incidentally the first footage of Gontareva’s house burning was shot and reported by a TV station controlled by Kolomoisky, which happened to be nearby in the middle of the night.
So far the damage to Ukraine's image has been limited to the international community. The Ukrainian people themselves are still very happy with their new president, whose approval rating has been soaring. The quick results as anti-corruption legislation sails through parliament and Zelenskiy delivers on his promise to return POWs from Russia, including celebrity director Oleg Sentsov, have been PR successes for the young president. A recent survey found that the majority of Ukrainians see the country going in the “right direction” for the first time in five years.
Analysts and journalists were fast to condemn the attack, then Ukraine’s partners piled in later in the day underscoring the seriousness of the incident.
"Recent apparent series of attacks against the person and property of the former Governor of the NBU is unacceptable, as the UA President said this morning.We expect law enforcement agencies to investigate and bring those responsible to justice w/out delay," the EU delegation to Ukraine tweeted.
The US embassy issued an even stiffer statement, also calling for an investigation, but also calling for action against "whoever ordered the attack" in a clear reference to what everyone in Kyiv is thinking.
"We join Ukrainian president Volodymyr Zelenskiy and other Ukrainian officials in calling for an urgent and thorough investigation of the arson attack on the home for former NBU head Gontareva. We stand with the Ukrainian people in expecting the responsible authorities to bring to justice now only the perpetrators of the attacks and threats against Gontareva, but also those that ordered the attacks," the US embassy said in a statement realease on social media.
The timing of the arson attack is doubly sensitive as a team from the International Monetary Fund (IMF) is currently in Kyiv to negotiate a new three-year Extended Fund Facility (EFF) worth $5bn, which was due to be agreed any day.
Ukraine’s donors are likely to try and ignore the Kolomoisky issue as long as they are getting the reform legislation they demand passed. As bne IntelliNews reported, the new government has set itself a hectic and ambitious legislative agenda for the autumn and donors will be most concerned with getting as many of these laws onto the books as possible. However, if the government goes through with the suggestion of paying Kolomoisky the mooted $2bn of compensation for PrivatBank, then all bets are probably off.
“Hard to see the IMF buying that bull. Remember IMF money was disbursed on the basis of a reasonable resolution of the Privatbank case, which meant nationalisation in the first instance and pursuit of losses to state from former owners,” says Ash.