West Holds off on Ukraine Aid Pledges, Fearing "Bottomless Pit" of Corruption

(Reuters) – International lenders are delaying plans to offer Ukraine billions of dollars on concerns Kiev cannot yet prove the cash will not vanish into a corrupt economy which EU officials fear could remain a “bottomless pit”.

Ukrainian authorities are still preparing a much-anticipated donor conference for April 28 but EU officials told Reuters that Western governments and agencies are now expected to meet in Kiev only late in the year, giving Ukraine longer to draw up more detailed proposals for how it would spend the money efficiently.

The European Commission said on Thursday that its president, Jean-Claude Juncker, would visit Kiev on Monday ahead of a newly announced EU-Ukraine summit there on April 27.

EU officials said leaders hoped the summit would help agree an agenda for economic and other reforms as the bloc tries to bolster its ally President Petro Poroshenko, who was elected in May last year, in the face of hostility from Russia.

“Major economies, Germany, the United States, are going to pledge billions of dollars in long-term loans and they want to know what their money is to be spent on,” one EU official said.

Another said that while Ukraine was still hoping to host a donor conference from April 28, the day after the EU meeting, there was little prospect of major institutions attending.

Western powers see the aid package to rebuild near-bankrupt Ukraine as their most effective tool against Moscow in a tug-of-war for influence in the country. But they are wary of investing in one of the world’s most corrupt states.

Last month, European Commissioner Johannes Hahn, who is responsible for the EU’s neighborhood policy, told Reuters: “We have to avoid a bottomless pit. We want to have a precise plan.”

A Ukrainian government source said authorities were still preparing for a conference in April: “But we also know some people in the EU want to postpone it to the end of this year.”

Despite the delay, officials say the conference will go ahead at some point because Kiev’s $17.5-billion bailout by the International Monetary Fund sets the stage for donors, such as the European Union, Norway, Switzerland and Canada, to come in.

The European Parliament this week approved 1.8 billion euros in EU loans to Ukraine over the next two years.

In all, the IMF money, a $15.3 billion debt restructuring, previous pledges and an international donors’ conference could mean some $65 billion going into Ukraine, in one of the world’s biggest aid programs in recent times.

As agreed with the European Union, Ukraine has submitted a reform plan by a March deadline, officials told Reuters. There are still doubts about how many roads, power plants, schools and hospitals Ukraine needs and how far judicial reforms will go to avoid money being siphoned off by corrupt bureaucrats.

At the EU-Ukraine summit next month, Commission president Juncker, European Council President Donald Tusk and Poroshenko, will seek a “comprehensive road map for reform”, according to EU officials briefed on the preparations.

Hahn said in February the West was also looking for funds to deal with the humanitarian crisis in the country stemming from the country’s conflict with Russian-backed separatists.

Aid efforts are linked to preparing Ukraine for a trade agreement with the European Union, a deal that lies at the center of the stand-off with Russia because Moscow wanted Kiev to join its Eurasian customs union.

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