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Ukraine: Investors Find Odessa's Word Isn't Its Bond

  • Stefan Korshak



Odessa, 5 June 1998 (RFE/RL) -- Recent political turmoil in Odessa may make $44-million-losers out of a number of foreign and domestic venture capitalists.

The investors last spring bought into an Odessa municipal bond that promised an eye-catching annual return of 50 percent. The issue raised the equivalent of nearly $33 million in just its first few weeks.

As the first payments came due late last month, the city government made initial payments worth more than $123,000. But after two days, payments were stopped cold when President Leonid Kuchma ousted Odessa Mayor Eduard Hurvits. Hurvits' March 29 re-election had been ruled invalid by the Supreme Court.

The president appointed an acting city administrator and announced a general audit of the city's books amid accusations of financial mismanagement and corruption. This left the ultimate status of the bond issue unresolved.

Prime Minister Valeriy Pustovoytenko last week sought to reassure investors, saying that the central government would protect Odessa bond-holders.

Vyacheslav Volovyk, a spokesman for Porto-Franco, the local bank that handled the bond issue for the city government, said the Odessa City Council would probably take up the matter this weekend. He said that his bank had no choice but to cease bond payments. In his words: "The city stopped sending us money to make further redemptions. No written instructions, the money just stopped coming."

The central government will run Odessa City Hall at least until August 23, when the Odessa mayoral election is to be re-run.

Hurvits, who has repeatedly denied allegations of financial wrongdoing, maintains that had the national government left him in office, bond payments would never have been cut off.

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