What is the attitude of Ukrainian government to IMF requirements? Will the new head of the National Bank be independent?

On July 3, the Verkhovna Rada of Ukraine dismissed Yakov Smoliy from the post of head of the National Bank of Ukraine (NBU). The reason was a letter of resignation written by Smoliy the day before. The former head of the NBU motivated his decision by the statement that the NBU leadership experiences systematic political pressure from the government, deputies of the Verkhovna Rada and the President.

The International Monetary Fund reacted quite negatively to the Smoliy’s resignation. Foreign partners had repeatedly noted the high professionalism of the NBU leadership.

‘Under his leadership, Ukraine has made important strides in achieving price stability, amply demonstrating that an independent central bank is a key element of modern macroeconomic policymaking,’ an IMF spokesman said in a statement.

However, the organization added that the most important was that the successor of Smoliy could guarantee the independence of the National Bank.

‘That is why the independence of the NBU is at the centre of Ukraine’s Fund-supported programme, and why it must be maintained under his successor,’ the IMF spokesman added.

President of Ukraine Volodymyr Zelensky officially declared his intention to maintain the independence of the NBU. After consulting with experts on the candidacy of the new NBU head, the President said:

‘An independent National Bank is a guarantee of macroeconomic stability of the state and the welfare of Ukrainians. Therefore, as President, I will protect the independence of the NBU under any leadership as a basis for financial and macroeconomic stability of our state.’

Now, the main question is who will take the place of the head of the National Bank of Ukraine as it will affect the country’s economy. Will NBU start emission of hryvnia or continue to cooperate with the IMF?

Experts consider Kyrylo Shevchenko, the Chairman of the Board of JSB Ukrgasbank, to be one of the main contenders for the vacant post. Shevchenko is an economist with 26-year working experience and an established track record. President Zelensky considers his candidacy.

However, the banker also has ‘skeletons in the closet.’ In 2017, he was involved in a big scandal. Back then, despite the ban, Ukrgasbank under the leadership of Shevchenko continued to use Russian transaction processing system. That put at risk bank’s customers, including the National Guard and the Security Service of Ukraine.

In 2019 whilst performing an audit, the International Finance Corporation (IFC) found that Ukrgasbank had a too high level of bad loans as well as criminal cases related to money laundering. In 2020, the State Fiscal Service made searches in the Kyiv branches of Ukrgasbank, as well as at Kyrylo Shevchenko property as part of an investigation of the possible tax evasion. All these aspects can easily become a tool for manipulating Shevchenko’s actions in the hands of the authorities.

Another candidate for the post of the main banker of Ukraine is the current Head of Council of the National Bank of Ukraine. Bohdan Danylyshyn is an opponent of Smoliy. In addition, the head of the NBU Council advocates a change in the all the current leadership of the National Bank. Danylyshyn believes that since decisions at the NBU are taken collectively, in order to change the wrong, to his opinion, course, everyone should be dismissed. However, such actions could seriously worsen relations between Ukraine and the IMF. The agreement between Ukraine and the IMF was made with particular NBU officials that keep on working in the organization. Termination of the contracts will give a warning about political pressure on the National Bank and attempts by the state to intervene in the process. That contradicts one of the main requirements of the IMF, i.e. the independence of the National Bank.

There are also other factors that indicate about political pressure on the NBU. Before leaving the post, Smoliy had three meetings with the President. One of these meetings was attended by the Head of the Presidential Administration Andriy Yermak. According to Ukrainian media, he showed extremely negative attitude towards Smoliy.

Earlier, the leadership of the National Bank stated about pressure from oligarch Ihor Kolomoisky. The bankers complained about media attacks and paid rallies under in front of the NBU building. The NBU leadership also considers harsh criticism from the side of the supervisory council as part of Kolomoisky’s campaign. The bankers believe the purpose of all these actions is the change of the NBU leadership and, as a result, the breach between Ukraine and the IMF. The latter will allow the oligarch to avoid returning 5.5 billion US dollars withdrawn from PrivatBank to the state. He must return this money as the owner of the bankrupt and subsequently nationalized bank.