Ukraine Urged by EBRD to Tackle ‘Vested Interests’ in Overhaul

Ukraine, seeking to retool its economy toward the European Union, must tackle “vested interests” to attract investment, according to the president of the European Bank for Reconstruction and Development.

“Ukraine is facing very strong vested interests which continue to post challenges for reforms,” Suma Chakrabarti said Thursday at the bank’s office in Kiev after meeting Ukraine’s president, prime minister and business leaders. “That’s clearly a big issue.”

President Petro Poroshenko has said he’ll break the grip of billionaire oligarchs on the economy, falling out with tycoon Ihor Kolomoisky. The former Soviet republic recorded $774 million in outflows of foreign direct investments in the year through May and ranks 142nd of 175 countries in Transparency International’s corruption perceptions index.

Ukraine’s economy shrank more than 17 percent from a year earlier in the first quarter as the fight against pro-Russian separatists in the nation’s two easternmost regions undermined industry. In 2015, gross domestic product will contract more than the 7.5 percent estimated by the EBRD in May, Chakrabarti said.

The London-based bank, which has lent Ukraine about 100 million euros ($110 million) this year, may increase investments toward 1 billion euros if the government proceeds with reforms, according to Chakrabarti.

There’s “plenty of investment opportunity” for the EBRD in industries including agriculture, energy and banking as long as reform is implemented, he said. In the natural gas industry, the government must improve corporate governance at the state-run energy company; there should also be consolidation, restructuring and recapitalization in the financial sector, he said.

“Ukraine still has far too many banks,” Charkabarti said. “And too many banks are personal piggy banks of oligarchs.”

The EBRD is ready to assist with privatization, according to Charkabarti, who urged the government to clearly indicate which companies it will sell and improve corporate governance at those it plans to keep.