The National Bank of Ukraine, hailed by Western creditors as a standout success story in reforming the country’s financial sector, has had its independence threatened in recent weeks.
A group of parliamentarians submitted a draft law that would curb the bank’s powers just days after former tycoon and Donetsk governor and now lawmaker Serhiy Taruta distributed a pamphlet at an International Monetary Fund conference accusing NBU Governor Valeriya Gontareva of corruption.
IMF Ukraine Country Director Jerome Vacher made an oblique reference to the attack in an Oct. 18 remark at the Norwegian-Ukrainian Business Forum in Oslo, warning that vested interests are trying to reverse critical reforms important to the fund’s lending program to Ukraine.
“We see that now in legislative attempts to limit the independence of the central bank and the powers of the Deposit Guarantee Fund,” Vacher said. “So it’s a concern and a constant struggle.”
Dangerous legislation
Lawmakers submitted a draft law to parliament on Oct. 10 that is designed to amend the laws on the NBU and the economic, civil and administrative codes of procedure.
If adopted, the law would significantly limit the NBU’s independence. Given that the independence of the central bank is one of the requirements in the memorandum between Ukraine and the IMF, the move might jeopardize Ukraine’s relations with its Western creditors.
The document is co-authored by Oleh Lyashko, two other lawmakers from his Radical Party – Serhiy Rybalka and Viktor Galasiuk, pro-presidential Bloc of Petro Poroshenko faction lawmakers Leonid Kozachenko and Mykhaylo Dovbenko, Maksym Polyakov from the People’s Front faction, and Oleh Lavryk from the Samopomich faction.
An explanatory note of the draft law, published on the parliament’s website, states that “the contradiction between the extremely powerful levers concentrated in the National Bank of Ukraine and the absence of the mechanisms that would guarantee” that it is working in the public interest cause systemic problems both in Ukraine’s banking system and its entire economy.
According to the bill’s drafters, an independent central bank has resulted in “uncontrollability and irresponsibility that has caused “huge financial losses.”
The draft law suggests dismissing the NBU head and deputy heads, to make the process of appealing against NBU rulings easier, and to make support for stabilizing the exchange rate the central bank’s main function.
In an official statement published on its website on Oct. 18, the NBU criticized the draft law, calling it a populistic move, and an effort to terminate reforms in the financial sector and prevent the NBU from reducing inflation.
The NBU also appealed to President Petro Poroshenko, asking for support on the issue.
While the president has kept silent on the matter, the NBU has received support from Ukraine’s 12 biggest banks, including Raiffeisen Bank Aval, UniCredit Bank and OTP Bank. In a joint letter, the heads of the banks said the draft law endangers the financial stability of Ukraine.
The only big bank that did not step up was Ukraine’s largest PrivatBank, owned by billionaire Igor Kolomoisky. Privat did not reply to a request for comment.
Serhiy Fursa, an analyst with the Dragon Capital, was not surprised that PrivatBank did not sign the letter, as he believes its management is lobbying for the draft law.
He said other players that might be interested in attacking the NBU are: “populists that just use the situation as a reason, a flag; part of the insurance business, because soon the NBU is to take the control over the insurance market and clean it just as it did with the banking sector; embattled oligarchs that today in fact owe money to the NBU, as they gave personal guarantees for their banks, which have now been taken off the market, and they are now trying to evade taking any form of responsibility for this, including financial responsibility; and, of course, PrivatBank, which is fighting against being nationalized.”
Fursa spoke out against the draft law, saying it was “one of the stones that are being thrown at the NBU.”
However, he said the chances of the draft law being adopted were very low, and even if it gets passed in the Verkhovna Rada, it would probably be vetoed by the president.
Compromising pamphlet
The first volley in the attack on the NBU came not in Kyiv, but in Washington D.C.
From Oct. 7 to 9, the IMF held a series of annual meetings in which bankers from around the world gather in the U.S. capital.
At the meetings, a pamphlet entitled “Gontareva: A threat to the economic security of Ukraine” was distributed to attendees.
The pamphlet makes the claim that Gontareva is one of the “most destructive forces in the Ukrainian economy.” To that end, the document offers a history of Gontareva’s career that casts her as a “wicked stepmother” of Ukraine’s financial system. The pamphlet then runs through a litany of accusations that Gontareva has abused her position as the head of the central bank for her own enrichment.
Some of these allegations – including questions over bond purchases during Gontareva’s time as head of Investment Capital Ukraine – have weight, and have been investigated by journalists covering the bank.
The NBU responded to the pamphlet in an Oct. 14 press release, accusing oligarch and parliamentarian Serhiy Taruta of spreading the materials. The bank demanded that criminal proceedings be launched against Taruta for slander, calling the pamphlets part of an “information campaign aimed at discrediting the NBU’s governor.”
“Instead of engaging in a constructive dialogue with foreign partners and friends of Ukraine, these oligarchs resort to fabricating insinuations and dirty provocations,” Gontareva said in a statement.
“They shamelessly distributed false information even at an IMF meeting.”
Kyiv Post staff writers Josh Kovensky and Alyona Zhuk can be reached at [email protected] and [email protected]
