Rada dismiss heads of central bank, antimonopoly committee

Ukraine’s parliament voted on July 3 to dismiss the
governor of the National Bank of Ukraine (NBU) Yakiv Smoliy and the head of the
Antimonopoly Committee Yuriy Terentiev, based on their resignation letters
submitted on July 1. With a simple majority of 226 voted needed to dismiss
them, MPs provided 286 votes for Smoliy’s dismissal and 226 votes for
Terentiev’s. Both officials were among the few high-ranking survivors from the
Poroshenko administration. They both had seven-year terms, with Smoliy
completing two and Terentiev five.

President Zelensky said on July 4 his office placed no
pressure on Smoliy to resign from his office, Interfax-Ukraine reported,
offering a conflicting account of Smoliy’s claim that he underwent systemic
political pressure. Zelensky also said that he convened three meetings to
discuss candidates for Smoliy’s replacement – with NBU board members, the top
managers of state banks and the top managers of private banks – which produced
three lists of candidates.

Recall, among the NBU governor candidates rumored
about last week were Bohdan Danylyshyn (head of the NBU Council), Kyrylo
Shevchenko (CEO of state-run Ukrgazbank) and Volodymyr Lavrenchuk (former CEO
of Raiffeisen Bank Aval). Kyrylo Shevchenko is the most likely candidate, the
nv.ua news site reported on July 3, citing a banker present at the meeting with
Zelensky who confirmed his name was most often mentioned at the meeting.

In related news, the NBU Council decided today not to
reappoint NBU board member Oleh Churiy to a second seven-year term, the Council
head Danylyshyn wrote on his Facebook page on July 6. Churiy’s term as deputy
NBU head expires on July 10, and the first attempt to reappoint him failed last
week. 

Alexander Paraschiy: The NBU
adopts all its rulings on a collective basis, requiring a simple majority among
its six board members that include the NBU governor and five deputy governors,
with the NBU head having the final decision in the event of a tie. In theory,
this sets the foundation for the NBU’s independence and adaptability of its
policy, as its board members are ever-changing.

All the NBU board members had been unilaterally
supporting a policy of inflation-targeting and opposing proposals for radical
monetary softening or monetary easing (printing money). NBU’s policy is highly
appreciated by Ukraine’s Western financial partners, but is being criticized by
many domestic politicians and officials, including Danylyshyn. The NBU Council
head is known for opposing the NBU’s current monetary policy and being an
advocate of quantitative easing.

If the president wants to change NBU’s policy, now is
the best time for that as the board has lost two of its six members within a
few days. By replacing both Churiy and Smoliy with two loyal board members this
week, Zelensky could rather easily recruit one of the four remaining board
members to form a loyal bloc to introduce a new monetary policy.

We see a high risk that the president will take
these steps in pursuing a new monetary policy, to the dismay of Ukraine’s
Western partners. This would merely be the latest investment risk for Ukraine,
and threat to the NBU’s independence.