On Monday April 10, the Head of the National Bank of Ukraine, Valeria Gontareva announced her resignation since May 10, 2017. Although, rumors of her possible resignation have been spread repeatedly within recent months, Gontareva’s decision to resign office is still a surprise. Under the Constitution, the head of the NBU is appointed by the Verkhovna Rada at the suggestion of the President of Ukraine for 7 years. The Verkhovna Rada appointed Gontareva head of the NBU on June 19, 2014. Why has she prematurely resigned? And why now? UCMC has tried to understand.
“Mission accomplished”: or what are Gontareva’s achievements?
According to Gontareva, she leaves her post at her request considering her “mission” fully accomplished and the reform in the NBU done. What was the mission and achievement of the only woman in the history of Ukraine serving as head of the National Bank?
Reduction in the number of unreliable banks. Gontareva reduced the number of banks in Ukraine by almost half. The National Bank conducted stress tests of the banking system, and all banks that have not passed the test were declared insolvent and withdrawn from the market. Whereas in early 2014 there were 180 banks in Ukraine, now according to the official NBU statistics, there are only 92 operating financial institutions. Accordingly, 88 banks have been declared insolvent within three years.
The market exchange rate. For the time of Gontareva’s work in the NBU, hryvnia depreciated almost three times. The depreciation of the currency was caused by many external factors: the disastrous state of reserves after Yanukovych and economic decline resulted from the annexation of Crimea and military operations in the East. In these difficult conditions, the National Bank decided to abandon the fixed exchange rate policy, which in times of Yanukovych was maintained due to “burning” the gold and foreign exchange reserves. During the reign of Gontareva, the NBU switched to a floating exchange rate, as repeatedly required by the IMF.
However, to keep the hryvnia from rapid fall, the National Bank imposed restrictions on the purchase of foreign currency and the mandatory sale of foreign exchange earnings by exporters. After receiving the next tranche from the IMF (April 5, 2017) the restrictions were eased. Today one can buy currency for 150 thousand UAH (five thousand euros), and exporters must sell only 50% of foreign exchange earnings.
Disclosure of bank owners. In March 2015, the Verkhovna Rada passed a law on increasing liability of shareholders, and in summer, the National Bank ordered banks to submit information on their beneficial owners. Since then all financial institutions must disclose the names of their ultimate beneficiaries. If a bank refuses to do this, it is threatened with withdrawal from the market. Now information on the beneficial owners can be found on the NBU website.
The reduced number of unreliable banks, market exchange rate and transparency in the ownership of banks significantly improved the banking sector. Foreign exchange reserves increased by half – from 7.5 billion in late 2014 up to 15 billion USD in 2017.
What may Gontareva’s resignation mean?
Over less than three years in the office, Valeria Gontareva was subject to criticism and pressure from both the owners of commercial banks, dissatisfied with her decisive measures and Ukrainian citizens dissatisfied with a sharp hryvnia devaluation and restrictions on foreign currency purchases. Meetings of allegedly deceived depositors of bankrupt banks gathered near NBU. The wave of criticism erupted after publishing Gontareva’s electronic declaration. It revealed that the head of the NBU keeps her savings in dollars and not in hryvnias (1.831 million USD in “The State Export-Import Bank of Ukraine” and 61,900 UAH in Oschadbank). This constant pressure can be part of the answer to the question about the reasons for her voluntary resignation. But it is unlikely that this was the main reason.
NABU investigation. More importantly that Gontareva’s resignation may be associated with the NABU investigation. On March 29, NABU detectives carried out searches at the National Bank of Ukraine. These searches, according to Artem Sytnyk, NABU head, concerned the National Bank management.
“We have been investigating the criminal case against the leaders of the National Bank of Ukraine for several months. It refers to the misappropriation of funds allocated to some commercial banks for refinancing,” informed Artem Sytnyk. According to him, most of the funds received by commercial banks were transferred from Ukraine to offshore or foreign banks. Sytnyk added that such huge financial flows “are impossible without the participation of the National bank leaders”, and assured that nearly all the leaders of the regulator will be checked for involvement in these actions. Total loss from such actions can be billions.
Avoidance of Nasirov’s scenario. Valeria Gontareva is President of Ukraine Petro Poroshenko ‘s partner. Previously, Gontareva headed the board of directors of investment company ICU, which for many years, acted as financial advisor to Poroshenko before his election as President. ICU also advises him on the sale of Roshen. When Gontareva became a civil servant, she sold her stake in the company.
After NABU had arrested Roman Nasirov, head of the State Fiscal Service, and PPB pushed for an appointment of their auditor to NABU it became clear that the President’s party has reasons to fear NABU investigations. NABU suspicions that fell on NBU leadership may well result in “Nasirov’s scenario” for Gontareva, and the possible consequences of her detention and criminal punishment will adversely affect the positions of the party of power. Therefore, the “voluntary resignation” can be a timely removal of a player from participation in a game because he may do harm to the Presidential team game.