The governor of the Bank of Ukraine warns of the “damaging effects” of the oligarchs
The powerful oligarchs are exerting a “dangerous and destructive influence” on the Central Bank of Ukraine, weakening confidence in the economy, and threatening plans to fight corruption and privatization of state-owned banks.
Kyrylo Shevchenko, the president of the National Bank of Ukraine (NBU), issued a warning at a time when Eastern European countries introduced new laws to combat corruption and promote good governance in financial institutions. He said this is an important step towards the privatization of Ukrainian state-owned banks, which account for 55% of the country’s banking industry.
In an interview with the Financial Times, Shevchenko said: “If we do not carry out further anti-corruption reforms, it will be difficult to protect the rights of creditors and investors in Ukraine.” “One of my goals is to protect the state. Bank’s corporate governance reform. Otherwise, future privatization will never happen.”
He emphasized the “very important” role of the central bank in the economy, adding: “I believe that the political pressure on it has a destructive and dangerous impact…. Vested interest groups and oligarchs are behind it.”
After a campaign backed by billionaire Igor Kolomoisky, Ukrainian President Volodymyr Zelensky took office two years ago, promising to tackle rampant corruption problem.
Zelensky has since kept his distance from the oligarch, but it has been difficult to convince the International Monetary Fund and foreign governments that he is determined to eliminate corruption, resulting in repeated delays in the payment of the $5 billion standby loan program.
Since Shevchenko was appointed a year ago, the central bank has experienced a series of resignations, with 30% of senior managers resigning.
The head of the NBU licensing department and eight colleagues resigned last month, complaining about the lack of transparency and autonomy, and the focus of decision-making on “one hand.”
Shevchenko sees this as part of the pressure on him and the central bank. “I am disappointed to hear this news from the media rather than from my colleagues,” he said. “I think this PR campaign about resignation is an attempt to put political pressure on the NBU.”
As part of the liquidation of Shevchenko’s two predecessors, about 100 bankrupt Ukrainian banks — some owned by oligarchs — were liquidated, and others were nationalized.
Timothy Ash, Sovereign Debt Strategist for Emerging Markets at BlueBay Asset Management and a long-term expert in Eastern Europe, stated that under their leadership, NBU is “the one I have seen in any country I cover over the past 30 years. The most reformed institution.
After the departure of former NBU head Yakiv Smolii Complaining about political interferenceThe appointment of Shevchenko, the former chairman of the board of one of Ukraine’s largest state-owned banks, is seen as a potential erosion of the independence of the central bank.
But observers said that Shevchenko has always adhered to the NBU’s inflation targeting system. For example, although Ukraine is struggling to fight the epidemic, but economic growth is threatened, he raised interest rates twice to control price increases.
Two people around Zelensky told the Financial Times that Shevchenko himself was at risk of being replaced.
But another reorganization will further complicate the loan negotiations of the International Monetary Fund. Shevchenko said that the window for obtaining loan approval is “not as wide as we want,” but he believes that the fund will release $3.2 billion this year. Ukraine will receive another 2.7 billion U.S. dollars from the IMF Special Drawing Rights issue, which is expected to be approved in August.
The Ukrainian parliament passed two laws that are vital to the reform of the country’s judiciary this month as a condition of the IMF’s plan.
Shevchenko said that the National Bank of Ukraine has frozen or revoked the operating licenses of more than 20 of Ukraine’s 188 registered insurance companies because they were used by entities including state-owned companies to launder money.
The market also reacted positively to the appointment of banker Serhiy Nikolaychuk last week to replace the respected Dmytro Solohub as NBU Deputy Governor.
BlueBay’s Ash questioned Shevchenko’s record since taking office. “We can argue whether he has maintained the NBU’s institutional strength, but I would say it is much weaker than when he joined,” Ash said, citing the outflow of respected technocrats.