Ukraine: Wanted – patient central bank governor

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What’s holding up a key appointment for the Ukrainian economy and banking system?

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Acting NBU governor Yakiv Smolii with former governor Valeria Gontareva

In mid-April Ukraine’s respected post-Maidan central bank governor, Valeria Gontareva, tendered her resignation. More than seven months later the vacant post has yet to be filled.

Why is it taking so long? It is a question that National Bank of Ukraine (NBU) staff are starting to raise publicly. In early November deputy governor Dmytro Sologub said the delay was harmful and risked damaging relationships with markets and international financial organizations.

Two weeks later, Ihor Kononenko, the deputy head of president Petro Poroshenko’s parliamentary party said consultations were being held and several candidates were being considered. A decision might be made by the end of the year – but then again it might not.

What is particularly baffling is that the only two names mentioned by Kononenko were those of Volodymyr Lavrenchuk, the chairman of Raiffeisen’s Ukrainian subsidiary and acting NBU governor Yakiv Smolii.

This is not to say that there is anything wrong with either of the two – quite the opposite. For many, particularly in the international donor community, Lavrenchuk is the natural choice.

As the long-standing head of one of Ukraine’s largest and most successful banks, he is well-qualified to continue Gontareva’s work of cleaning up the banking sector and overseeing the fallout from the nationalization of PrivatBank.

Supporters also note that he combines political independence with a talent for diplomacy, making him an ideal candidate to rebuild bridges burned by the combative Gontareva.

Plaudits

Smolii, who joined the NBU from the private sector in 2014, has a lower public profile than Lavrenchuk but has earned plaudits for his stewardship during the interregnum. In late October the NBU defied political pressure to lower borrowing costs by hiking interest rates by a full percentage point.

Lavrenchuk and Smolii are both good candidates for the governorship. Both would likely be acceptable to markets as well as to the international financial institutions on which Ukraine still depends for cash and expertise. And both are – or were – available. Smolii is already in post while Lavrenchuk made it clear in April that he would be willing to take on the job.

Why then has Poroshenko been so reluctant to pick one of them? Does he fear Lavrenchuk would be too independent? Has he been waiting to see how Smolii’s temporary appointment would work out? Or is he hoping to hand over the NBU to someone less acceptable to the international financial community – a key political ally, perhaps, or a compliant aide?

Concerns

All these theories, and many more, have been swirling round Kiev for months. It is time to put an end to them. Ukraine urgently needs foreign investment, but international firms are not going to risk their cash until the country’s leaders prove they are serious about tackling endemic corruption and reversing decades of mismanagement.

Leaving the central bank without a governor for the best part of the year only reinforces rising concerns about Ukraine’s political direction and Poroshenko’s commitment to reform. He needs to prove the doubters wrong, and quickly. Naming a suitable replacement for Gontareva would be a good start.