In this post, after some whining about a potential conflict of interest at the new Ukrainian cabinet, I suggest that the new finance and economy ministers were chosen with a view to attracting foreign capital above all other priorities.

President Poroshenko has granted Ukrainian citizenship to Aivaras Abromavičius, tapped to become the next minister for economic development and trade. A Lithuanian, Abromavičius is a partner with the Swedish fund management firm East Capital and has been overseeing its Ukrainian portfolio since 2008. East Capital has been a major player in emerging Eastern European markets since its inception in 1997 and has actively invested in Russian stocks. Although the Russian equity market has collapsed since the start of Russia’s assault on Ukraine, its capitalization is still much higher than Ukraine’s. I would be surprised if East Capital were not invested in Russian stocks at the moment.

This means that unless Abromavičius severs all ties with East Capital, his relationship with the fund could lead to a double conflict of interest. But considering that Abromavičius will have to give up his Lithuanian citizenship to accept the post, it stands to reason that he will distance himself from his former employer.

Curiously, Poroshenko’s nominated finance minister, Natalie Jaresko, a US citizen, is CEO of a private equity firm, Horizon Capital, and has extensive experience in running Ukraine-focused funds, dating back to 1995. Jaresko has done some impressive capital raising for Horizon.

Sometimes it’s exactly the right idea to appoint outsiders to lead ministries responsible for radical structural reform. But a resident fund manager quickly becomes a sort of an insider: in emerging markets, some investors would only put their money in funds whose managers are perceived to have special access to CEOs and government officials, in other words, to be as close to having access to insider information as is possible under a modicum of decency.

Which means some managers of major emerging-market country funds become too friendly with bureaucrats and business leaders to remain independent outsiders.

I believe that Abromavičius’ and Jaresko’s background make them perfectly suited to deal with foreign investors and creditors. Not so sure about structural reform.


    • As I say in my post above, I have nothing against appointing outsiders, including foreigners, to government positions – I think it could be an antidote to the chronic populism of Ukraine’s governments – but I have some reservations over the professional backgrounds of these two ministers.

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