The forced resignation of National Bank of Ukraine governor Yakiv Smolii stunned the banking sector and shook Ukraine’s relationship with international financial institutions.
Smolii said the situation can be salvaged by choosing the correct replacement, who would ensure that the NBU remains independent. But in the same interview, he acknowledged that he was forced out because the presidential administration wants to insert someone it can control.
Many observers fear that President Volodymyr Zelensky will use this opportunity to install a subordinate governor and push for printing money, which would satisfy a populist agenda but endanger the economy and future IMF loans.
“Having an independent fortress in the country is good for financial stability but inconvenient for the office of the president,” said a well-connected banking source, who spoke on condition of anonymity because of lack of authorization to speak publicly.
The source added that it was the administration’s plan to remove all current members of the NBU’s management board, who have been credited with Ukraine’s continued macroeconomic stability. Other experts agreed that this is an opportunity to install several amenable board member, giving the president more leverage over the regulator.
Zelensky has publicly stated that he believes the NBU’s monetary policy is too restrictive, saying “we have been struggling with this for about a year, talking to the National Bank very seriously to lower the discount rate so that people can get a loan.” This urgency has only intensified during the COVID-19 epidemic.
Prime Minister Denys Shmyhal said there would be “no surprises” with regards to the new role. As of right now though, there is more speculation than fact about who is in the running, with the situation changing day by day.
Many names of potential replacements for governor are floating around. The most likely frontrunners are, most likely, Kiril Shevchenko, the chairman of Ukrgasbank; and Bohdan Danylyshyn, the chairman of the NBU Council, the regulator’s advisory body.
Other less likely suggestions included Volodymyr Lavrenchuk, the head of Raiffeisen Bank-Aval; Serhiy Kruglyk, the NBU’s international relations director; and others. Some also put forward former economy minister Timofey Mylovanov but he is not eligible until one year passes since the end of his tenure.
Evgenia Kravchuk, deputy chair of the Servant of the People party, said that the new governor should be selected before the end of the current parliamentary session. Sources say that the short list will be submitted very soon.
Kiril Shevchenko
Sources in the banking sector and former officials have brought up Kiril Shevchenko as the likeliest frontrunner. Kravchuk confirmed to media that Shevchenko is among the leading candidates.
Since 2014, he has chaired Ukrgasbank, one of the top five state banks in the country by assets. Shevchenko spent 11 years at Finance and Credit Bank, eventually becoming chairman of the board until 2006. After, he chaired the State Mortgage Agency and advised former Prime Minister Yulia Tymoshenko. He then joined the Ukrgasbank supervisory board, as well as advising the chairman of Oschadbank. Shevchenko would become acting chairman of Ukrgasbank in 2014 and full-fledged chairman in 2015.
Sources in the banking sector said that it was well known that Zelensky wanted to install Shevchenko as NBU governor shortly after he was elected. Shevchenko’s name has been bandied about as a potential candidate for over a year, even though Smolii had more than five years left on his contract.
“[Shevchenko] could not be considered a candidate just because of the resignation of Smolii,” said the banking source. “We can make the conclusion that this was part of the same chain of events.”
Attempts to reach Shevchenko on social media and through Ukrgasbank went unanswered. Zelensky is close to Evgeniy Metzger, who was Shevchenko’s deputy at Ukrgasbank. More recently, Metzger became the chairman of Ukreximbank after the previous chairman, Oleksandr Hrytsenko, was arrested and charged with embezzlement and money laundering. The case raised concerns that Hrytsenko was being unfairly targeted due to being close to former president Petro Poroshenko.
Metzger’s wife Julia also represents Zelensky on the board of PrivatBank and is reportedly friends with staff from Zelensky’s old Kvartal 95 entertainment company. Last month, Zelensky called Metzger directly on the phone in public, addressed him by first name, and asked him to fix a problem at the bank as part of an apparent publicity stunt.
A former official, who did not want to be named to avoid possible retribution, said Shevchenko is one of the best state banking executives. But he does not think that Shevchenko has the policy chops to head up the country’s main financial regulator. Ukrgasbank is relatively small as state banks go and would not have provided the chairman with enough experience.
Anders Aslund, a senior fellow of the Atlantic Council, said that the main problem with Zelensky is that he wants someone he can control, echoing the words of Smolii. He called Shevchenko a “sweet, dependent person and that’s what [Zelensky] really cares about.”
Other sources in the banking sector said that this week, the president’s office got strong backlash from international financial institutions over Shevchenko’s candidacy, prompting the office to consider other, more palatable candidates.
“When the president’s office realized that Kiril’s appointment could stop cooperation with the IMF… they started to look for another candidate,” as of July 7, said the banking source.
But Dragon Capita’s Serhiy Fursa said that this is unlikely. There would have been no point getting rid of Smolii if Zelensky didn’t use the opportunity to install somebody that he could control.
Lawmaker Oleksandr Dubinsky said on his Telegram channel on July 8 that Shevchenko was out of the race but this has not been confirmed by anyone else.
Bohdan Danylyshyn
Danylyshyn, the head of the council of the NBU was the other candidate that was being considered at the head of the heap.
Danylyshyn, a doctor of economic sciences, taught in Ukraine Prague and Berlin. He had been appointed as economy minister in Tymoshenko’s second term. After the election of former President Victor Yanukovych, the prosecutor general’s office issued a wanted notice for Danylyshyn, who fled to the Czech Republic. He returned to Ukraine in 2014 and gained his current role in 2016.
The council chairman has consistently criticized Smolii’s policies. In the fall, he warned about the strong hryvnia, saying it could make entire industries unprofitable and hurt Ukrainian exporters. He also warned against the NBU leadership’s “orthodox inflation targeting,” overly strict monetary policy and avoidance of interference.
These views are in line with what the president’s office wants today — faster monetary easing. Smolii told LB.ua that the president’s office had called him many times since the start of the COVID-19 crisis, asking to drop interest rates more than he already had.
A few days ago, Danylyshyn rejected Smolii’s assertion that the NBU is under political pressure. Danylyshyn was also opposed to renewing the contract of deputy NBU governor Oleh Churiy. Smolii said that Danylyshyn told him to hash this out with the president, even though the council is the only body that’s supposed to have any input into this issue.
Danylyshyn’s policy vision also aligns with that of Ihor Kolomoisky and his parliamentary ally, Dubinsky. According to Smolii, what Danylyshyn said at council meetings, Dubinski said at street protests outside the NBU, although it was not clear who was echoing whom.
Danylyshyn had submitted proposals to the parliamentary banking committee to make it so that the council’s recommendations would be binding. This would allow it to set interest rates and have other major leverage. Currently, the council has no ability to directly affect the national bank’s policy.
Banking sources said that Danylyshyn is the least favorite candidate for IFIs, as he is perceived to have fanned the flames of pressure that caused Smolii’s resignation to begin with.
“Danylyshyn would be the best choice if you want to completely mess up the banking sector,” said the former official.
Volodymyr Lavrenchuk
Lavrenchuk is a well-known banker, having chaired Raiffeisen Bank Aval from 2002 through 2019. He said in 2019 that he was considering a role on a supervisory board of one of the state banks. This statement, plus his decent reputation led to speculation that he was in the running for the new governor of the NBU.
However, Lavrenchuk dispelled this notion in a televised interview, saying there was no reason to push out Smoliy, except to change the National Bank’s policy. The banker is a supporter of both Smolii and former NBU governor Valeriia Gontareva’s policies.
Lavrenchuk believes that the person who will replace Smoliy will be forced to follow orders to print money and he does not want to be in that position, saying this leads to dangerous consequences such as currency devaluation.
“I am aware that policy change is not my business,” he told interviewers. “That’s why I’m not a candidate.”
Other possibilities
Other possible candidates, whose names have been mentioned, have less certainty, with most industry experts unsure or in disagreement about their chances are.
In an interview with Ukranews, Ukraine Economic Outlook economist Mykhailo Kuhar said that western organizations would support Vlasyslav Rashkovan, a Ukraine representative at the IMF; Dmytro Sologub, an NBU board member; and Sergey Kruglyk, the NBU’s international representative.
The highly placed banking source confirmed that all three names are being bandied about as options for governor but Sologub and Rashkovan are too closely associated with Poroshenko and Gontareva, which makes them highly unpopular. As a dark horse candidate, Kruglyk’s relative obscurity is both his asset and his liability.
Aslund and Fursa praised Rashkovan, saying he would be a solid choice but see his chances as extremely unlikely. Fursa had a similar assessment of Sologub, who was deputy governor of the NBU since 2015, prior to which he headed the research department at Raiffeisen Bank Aval. As for Kruglyk, Fursa doesn’t consider him eligible, saying “you may as well put me forward as a candidate.”
Roman Zhukovskyi has also been mentioned. He has had a long history of public sector service, having worked for the economy ministry in 2005–2006, then heading up various economic policy units of Victor Yuschenko and Yanukovych’s presidential administrations until mid-2011.
More recently, he’s an adviser at the World Bank. Fursa said that while he would be a decent candidate, his selection would lead to policy changes at the NBU, as Zhukovsky has criticized the bank’s recent monetary policy.
New possibilities may appear day by day.
Kyiv Post’s Thaisa Semenova contributed reporting
