Pause too long in search for Ukraine’s chief banker

Yuriy Kulikov
15:00, 14 November 2017
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Interview

A delay in the selection and appointment of the new governor of the National Bank of Ukraine has been dragging on just a little too long. The incumbent head of the institution which is key to the country’s economic life, Valeria Gontareva, announced her resignation and has been on a leave since May 10, 2017. The said statement was voiced back on April 6, and there is no doubt that the president of Ukraine has been briefed much earlier, perhaps in February of March, on the need to search for the country’s new chief banker.

Therefore, Petro Poroshenko, who according to the Constitution should submit to the Verkhovna Rada a motion on Gontareva’s dismissal and, most importantly, propose a candidate for the top NBU post, had at least nine months to think everything through and take a decision.

That’s enough time to make a conscious choice. Further postponing the decision-making process will clearly exacerbate the situation both in the banking and money markets, as well as for Ukraine’s political players.

The guarantor will be accused of intending to influence the policy of the National Bank through the "suspended" status of the bank’s head

The delay, in the first place, is hurting Poroshenko, himself, whom his opponents will accuse of indecisiveness on an important issue or, even worse, of the attempt to manually manage the central bank. The guarantor will be accused of intending to influence the policy of the National Bank through the "suspended" status of the bank’s head.

This affects the National Bank, since it is quite obvious that no organization, let alone such a large and systemically important for the economy as the National Bank, can effectively develop while its head retains an “acting” status.

Since May 11 this post has been occupied by Yakov Smolii, who from October 2016 had worked as Gontareva’s first deputy. The president had plenty of time to figure out whether the man is good or bad at performing these functions. Let's not forget that ten years ago Poroshenko headed the Council of the National Bank. So, he certainly has an understanding of the specifics of this institution and its head’s operations.

Now it’s high time to decide and call out a name. And here, as we see, certain problems arise.

Half a year ago, Gontareva's resignation resonated greatly with the public, while the media were speculating on a candidate among Ukraine’s bankers who has chances to take her office. Time has passed, while no presidential motion was ever submitted to the Rada. Over time, the public interest has subsided, which has affected the focus of media outlets. An August statement by the president’s envoy to parliament Iryna Lutsenko claiming that Poroshenko has already decided on two candidates for the post and before late September would tell the Rada of his people of choice has only aroused only a grunt of distrust among skeptics. As it turned out, they were right. The calendar shows it’s mid-November already. So where’s the presidential motion with the names of his candidates for the post?

Half a year ago, Gontareva's resignation resonated greatly with the public, while the media were speculating on a candidate among Ukraine’s bankers who has chances to take her office

There is no doubt that the reason for this delay lays with the question of the level of influence of the Ukrainian president on the decisions of the country’s potential top banker. Obviously, the names in the presidential shortlist offer no 100% confidence in his choice and provide no full guarantees. But is it really what the president of European Ukraine needs?

Indeed, Valeria Gontareva, who had laid the foundations of the banking reform and the new strategy of the central bank, enjoyed Poroshenko's full confidence and worked with in his team. Most likely, the president today just can’t find such a figure among the country’s first league of bankers.

And it is possible that the head of the board of Raiffeisen Bank Aval, Volodymyr Lavrenchuk, whom bankers and experts most often saw as Gontareva’s most likely replacement, will, if appointed, pursue a more independent policy and distance himself from political influence. But is at all bad for the country and its economic system?

World experience shows that it is the independence of the central bank that is the basis of an effective economic system. Its weakness and subordination to certain branches of power or oligarchic interests always gives rise to a number of problems, and everyone is affected by their consequences.

A strong central bank with an experienced captain at the helm can and should become the locomotive of Ukraine’s economic revival. Besides the experience and high level of expertise, the new chief banker should have a vision of what the Ukrainian banking sector and the entire national economy should look like in three, five or ten years, and what role the central bank should play in boosting economic growth. That’s because the decisions made today will entail consequences for many years to come.

The main tasks are clear and have repeatedly been voiced by both Ukrainian and foreign economists and bankers. This is the transition to a new stage in the reform of Ukraine’s banking sector - the consolidation of the remaining banking institutions to improve competitiveness, reliability, and create reasonable incentives to expand business lending. It is necessary to boost the efforts on cleaning the Augean stables of idle bank loans and in conjunction with the Ministry of Finance to develop and implement a policy of reducing the state share in the banking sector.

World experience shows that it is the independence of the central bank that is the basis of an effective economic system

And let’s not forget about the need for further liberalization of the foreign exchange market and the implementation of a reasonable policy of the NBU’s key rate. And, perhaps, another tiny nuance is that the new NBU governor will have to convince the legislators to adopt a new progressive law "On Currency", which among other things is designed to raise the level of transparency in doing business and paying taxes in Ukraine. I should recall that the decree regulating the operations of the national currency market was passed back in February 1993…

Ukraine’s key creditor, the International Monetary Fund has recently once again pointed to the main reasons for the dragging reforms in Ukraine - personal interests and political fragmentation. But we already well aware of that: the so-called Hetmanshchyna [Hetman’s centralized reign], built on greed and selfishness and rolling down into chaos, has for centuries given Ukraine no opportunity to break out of the swamp of backwardness.

I suggest that the case with the appointment of a new head of the National Bank may be a good reason for Petro Poroshenko to show his critics that he puts public interests above personal ones and that the leader of our state understands the futility of trying to work simultaneously as president, head of government and chief of numerous state bodies, including the National Bank.

Strategically, the whole nation will benefit from an independent National Bank. And the independence of the bank starts with its leader. It’s time to make a choice.

Yuriy Kulikov

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