Western Balkans citizens legally resident in EU equal to 14% of region’s population
International Ice Hockey Federation (IIHF) has stripped Belarus of the right to hold the World Championship this year
Alexei Navalny arrested on arrival as he returns home
LONG READ: The oligarch problem
Russia's National Welfare Fund accounts for almost 12% of GDP
Police arresting activists ahead of Saturday’s demonstration in support of Navalny
Biden seeking a five-year extension to START II missile treaty
Russian consumer confidence index drops q/q, y/y in 4Q20
Western Balkans and Ukraine urged to scrutinise coal subsidies
Oligarchs trying to derail Ukraine’s privatisation programme, warns the head of Ukraine’s State Property Fund
Private finance mobilised by development banks up 9% to $175bn in 2019
VISEGRAD BLOG: Central Europe's populists need a new strategy for Biden
OUTLOOK 2021 Lithuania
EBRD says loan to Estonia’s controversial Porto Franco project was never disbursed
Czech MPs pass protectionist food law in violation of EU rules
M&A in Central and Eastern Europe fell 16% in value in 2020, says CMS report
Hungarian vehicle makers hit by supply chain shortage
COVID-19 and Trump’s indifference helped human rights abusers in 2020
OUTLOOK 2021 Poland
OUTLOOK 2021 Slovakia
BRICKS & MORTAR: Rosier future beckons for CEE retailers after year of change and disruption
FDI inflows to CEE down 58% in 1H20 but rebound expected
Albania needs reforms for e-commerce to thrive, says World Bank
BALKAN BLOG: US approach to switch from quick-fix dealmaking to experience and cooperation
Corona-induced slump in global clothing sector dragged down Albania’s 2020 exports
Bosnia's exports in 2020 amounted to BAM10.5bn, trade deficit to BAM6.3bn
Bulgaria's Biodit first company to IPO on new BEAM market
Bulgaria’s government considers gradual easing of COVID-related restrictions
Sofia-based LAUNCHub Ventures holds first close of new fund on €44mn
Spring lockdown caused spike in online transactions in Croatia
ING: Growth in the Balkans: from zero to hero again?
Labour demand down 28% y/y in Croatia in 2020
EBRD investments reach record €11bn in pandemic-struck 2020
OUTLOOK 2021 Moldova
Storming parliaments: New Europe's greatest hits
World Bank revises projection for Moldova’s 2020 GDP decline to 7.2%
Montenegrins say state administration is most corrupt institution
North Macedonia plans to cut personal income tax in IT sector to zero in 2023
Romania government to pursue “ambitious” timetable for justice reforms
OUTLOOK 2021 Romania
OUTLOOK 2021 Slovenia
Slovenia’s opposition files no-confidence motion against Jansa cabinet
Slovenia’s government to release funds to news agency STA after EU pressure
UK Moneyhub picks Slovenia for post-Brexit European base
D’S Damat franchise deals ‘show Turkey’s hard-pressed mall operators becoming their own tenants’
Turkey’s benchmark rate held as concerns over faltering recovery come to fore
Turkish lira breaches HSBC’s stop-loss, Turkey ETF signalling outflows
CAUCASUS BLOG : What can Biden offer the Caucasus and Stans, all but forgotten about by Trump?
Armenia ‘to extend life of its 1970s Metsamor nuclear power plant after 2026’
OUTLOOK 2021 Armenia
COMMENT: Record high debt levels will slow post-coronavirus recovery, threaten some countries' financial stability, says IIF
OUTLOOK 2021 Georgia
Iran’s Khamenei menaces private citizen Trump with image of aircraft shadowing blond golfer
Iran’s technology minister indicted for failing to properly implement internet censorship
No US move to rejoin Iran nuclear deal imminent, say Biden national security nominees
TEHRAN BLOG: Will Biden bet on a quick return to the Iran nuclear deal?
Central Asia vaccination plans underwhelm, but governments look unruffled
Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’
Mongolia's PM quits amid protests over treatment of mother with coronavirus and newborn baby
Mongolia's winter dzud set to be one of most extreme on record says Red Cross
Mongolian coal exports to China paralysed as Beijing demands virus testing of truck drivers
Mongolia fears economic damage as country faces up to its first local transmissions of coronavirus
OUTLOOK 2021 Tajikistan
OUTLOOK 2021 Turkmenistan
Turkmenistan: How the Grinch stole New Year
COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?
Download the pdf version
More...
Yakiv Smolii, the governor of the National Bank of Ukraine (NBU), has quit his job, citing pressure from a “systematic” campaign against him and the central bank by oligarch Ihor Kolomoisky.
“For a long time, systematic political pressure was applied to the central bank,” Smolii said July 1 in an emailed statement, as cited by Bloomberg. “This makes it impossible for me to efficiently fulfil my duty as governor and to co-operate with other government bodies.”
“I want my resignation to be a warning against further attempts to undermine institutional grounds of [the] central bank in Ukraine,” Smolii added.
“Ensuring the central bank’s independence remains our priority,” Ukrainian President Volodymyr Zelenskiy’s office said in a brief statement after the news broke.
“The central bank together with the cabinet should continue balanced monetary and fiscal policies that will help macroeconomic and financial stability, boost economy and restore banking lending. Discussions about the central bank must be “professional”,” the president added.
The bank’s board said that it would continue to work and none of Smolii’s colleagues will quit in solidarity with their boss, which will reassure investors somewhat.
“Members of the Board of the National Bank of Ukraine respect the decision of the Governor of the National Bank to resign and share his warnings about systematic political pressure. The Board considers it its duty to continue working to maintain macro-financial stability and the institutional capacity of the National Bank. The Board calls on the President, the Government and politicians to cooperate effectively with the central bank and to enable the National Bank to perform the functions assigned to the central bank by the Constitution of Ukraine and the Law of Ukraine "On the National Bank of Ukraine", the board of directors of the NBU said in a statement posted on the bank’s website.
Smolii’s decision to go is a slap in the face for Zelenskiy and a vote of no confidence in his commitment to the reform agenda. Commentators on Ukraine were already speculating that the new IMF deal has already been derailed by Smolii’s decision and the fund will watch carefully, but further disbursements of money under the SBA are now in doubt.
Within less than a day of Smolii’s decision to go questions are being raised as if Ukraine’s plans to issue a new Eurobond will fail. On July 2 the NBU formally launched the Eurobond offering and intends to raise $1.75bn with a 12-year bond with a guided yield of 7.3%-7.4% on the Irish stock exchange. The settlement date is July 8, 2020 and the bond will be denominated in 1,000 bills of $200,000 each. The bookrunners are Goldman Sachs and JP Morgan.
Out of the blue
Smolii's resignation has come out of the blue, but at a time when many of the reformers that came into Zelenskiy's government have also left or are being pushed out in the last few months.
Zelenskiy shook up the government with a major reshuffle on March 3, that included the sacking of the technocratic Ukrainian Prime Minister Oleksiy Honcharuk and unsettled Ukraine’s donors. In general his commitment to the reform process is being increasingly questioned by supporters.
The NBU has been a bastion of reform and won international kudos from Ukraine’s international donors and investors as being one of the few competent and progressive organs in Ukraine.
Smolii joined the NBU in 2014 following the EuroMaidan revolution and took over as governor in 2018. Since then, Smolii has continued the banking sector clean-up work began by his predecessor former NBU governor Valeriya Gontareva, which has put the sector back into profit and seen a mountain of non-performing loans (NLPs) provisioned for and detoxified.
The NBU has also run a conservative and prudent monetary policy that has underpinned the strength of the hryvnia and last year the central bank did not just control inflation; it crushed it. In a few short years the NBU has brought inflation down from over 60% in 2016 to 1.7% in May. That has allowed the CBR to deliver a series of 100bp-200bp growth-boosting rate cuts to an all-time record of low of 6% on June 11.
But maybe the greatest testimony to the trust the people have in the central bank was in March, when the hryvnia began to devalue rapidly as the double whammy of an oil price shock and the coronacrisis lead to panic buying of dollars by the population. The NBU was able to calm nerves and end what could have been a financial system destroying run on both the currency and accounts. The NBU deployed $2bn of is scant hard currency reserves to meet demand, then rapidly and decisively issued rules to banks to keep accounts open but at the same time reassured the population their money was not in danger. The panic passed and since then the NBU has been able to start accumulating hard currency reserves from the market.
Indeed, the independence of the NBU is so important that the International Monetary Fund (IMF) explicitly mentioned the need to keep its independence several times in the memo that accompanies the new Standby Agreement (SBA) deal reached on June 9, as described in a bne IntelliNews op-ed “Here is the money but we don't trust you.”
Smolii was a boon for Ukraine in the protracted negotiations over the new SBA that dragged on for seven months between the IMF's decision to do a deal in December and the actual signing off on the document in June. The NBU is the guarantor of a well-functioning banking sector, a conservative and well run monetary policy and financial stability in the country.
Smolii’s NBU also underpins the local debt market that was hooked up the international financial system last April and attracted some $5bn in fresh funds from international investors into its bonds – an important new source of funding for the now cash-strapped government.
Recent pressure
The ink was barely dry on the new SBA deal when deputies from Zelenskiy own Servant of the People (SOTP) Party introduced a bill that would remove some of the NBU’s autonomy and undermine the local debt market, widely believed to be backed by Kolomoisky.
A former friend of Zelenskiy and business partner, Kolomoisky suffered a humiliating defeat when the Rada passed the so-called anti-Kolomoisky banking bill on May 13 that makes it impossible for the state to return a bank to its former owned if it has been nationalised. The law was a pre-requisite for agreeing an SBA with the IMF. Kolomoisky has launched a blizzard of legal cases to try to overturn the nationalisation of his PrivatBank in 2016 after it was found to have a $5.5bn hole in its balance sheet.
Fresh fears that the NBU’s independence is in danger will undermine the government funding plans this year. With more than $17bn worth of debt repayments to make this year, the government’s funding plans are tight.
Ukraine is planning to offer a new issue of 12-year dollar-denominated Eurobonds, a banking sector source told Interfax-Ukraine on June 30, that will be used to buy back $750mn of bonds maturing in 2021 and 2022 as part of the debt redemption programme. But those bonds will be harder to sell in the face of increased uncertainty over the NBU’s fate.
Foreign investors are already nervous thanks to the ongoing multiple crises and have reduced their exposure to the local OVDP bonds despite the promise of a new IMF deal.
The OVDP bond market hit its peak on St Valentine’s Day with a total of UAH809.4bn ($30bn) worth of bonds outstanding, of which foreign investors owned 15.7% – both all-time high figures. But it has been an uncomfortable few months since then. As of May 28, the total outstanding amount of Ukraine’s local bonds was UAH883bn, but the foreign share of that has fallen to 11.9%.
And at the most recent auction bond traders were underwhelmed the yields on offer, and the Ministry of Finance only sold UAH1.3bn ($48.5mn) worth of new bonds on June 30. The local bond market is going to be a crucial tool for funding the budget this year and the government is banking on raising another $4bn-$5bn as it did last year.
Terror campaign
Perhaps it is not surprising that Smolii is giving up. In the last two years the NBU staff – present and previous – have suffered a sustained campaign organised by Ukraine’s oligarchs and bankers to remove the bank’s independence and make it beholden to the venally corrupt government.
Zelenskiy has been caught between the rock that is the NBU and a hard place that is Kolomoisky. The president was forced to choose sides during the passage of the anti-Kolomoisky bank bill as Ukraine was facing almost certain default and disaster if new IMF deal could not be secured and he came down on the side of the country.
But the president has been remarkably reluctant to act against his old mentor.
Kolomoisky has mounted a series of attacks against Gontareva, who was the one that pulled the trigger on the PrivatBank privatisation. She quit her job as governor of the NBU and moved to London after a coffin containing a mannequin with her likeness was delivered to the doors of the central bank.
“I was afraid for my life and my family told me: enough of this,” Gontareva told bne IntelliNews in an exclusive interview.
But that was not the end of her troubles. In London she was knocked down by a car under what the police called “suspicious circumstance” and hospitalised. Gontareva’s house was also burnt down in an arson attack on September 16 and shortly thereafter the car of her daughter in law was doused in petrol and set ablaze.
Likewise, other staff at NBU have harassed and paid-for demonstrators have picketed the NBU's office in central Kyiv, broken into the foyer and threatened the employees, while the police stood by and did nothing.
The NBU has branded attacks on its staff and Gontareva as a “terror” campaign and named Kolomoisky as being responsible.
PrivatBank has continued its campaign to try to recover some of the $5.5bn stolen from the bank under Kolomoisky and his partner Gennady Bogolyubov's management. It has launched cases in London and more recently in Cyprus, claiming billions of dollars. The London court has already frozen $2bn of Kolomoisky assets and is expected to hold a trial in the next year. The Cyprus case has only just started, but the management of PrivatBank told bne IntelliNews that it believes its chances of recovering some of the money are good.
One insider close to the story told bne IntelliNews that Kolomoisky is desperate to regain control of PrivatBank, or destroy the independence of the NBU that owns PrivatBank, in order to kill off all these cases.
With Smolii's departure the resolve of the NBU to continue its fight is now in question.
Register here to continue reading this article and 5 more for free or purchase 12 months full website access including the bne Magazine for just $250/year.
Register to read the bne monthly magazine for free:
Already registered
Password could contain only a-z0-9\+*?[^]$(){}=!<>|:-_ characters and have 8-20 symbols length.
Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.
Forgotten password?
Email field can't be empty.
No user with this email address.
Access recovery request has expired, or you are using the wrong recovery token. Please, try again.
Access recover request has expired. Please, try again.
To continue viewing our content you need to complete the registration process.
Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.
If you have any questions please contact us at sales@intellinews.com
Sorry, but you have used all your free articles fro this month for bne IntelliNews. Subscribe to continue reading for only $119 per year.
Your subscription includes:
For the meantime we are also offering a free subscription to bne's digital weekly newspaper to subscribers to the online package.
Click here for more subscription options, including to the print version of our flagship monthly magazine:
More subscription options
Take a trial to our premium daily news service aimed at professional investors that covers the 30 countries of emerging Europe:
Get IntelliNews PRO
For any other enquiries about our products or corporate discounts please contact us at sales@intellinews.com
If you no longer wish to receive our emails, unsubscribe here.
Magazine annual electronic subscription
Magazine annual print subscription
Website & Archive annual subscription
Combined package: web access & magazine print annual subscription