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NBU Blues – Valerie Gontareva on borrowed time?

March 7, 2015

It appears that the storm clouds are gathering around the current Head of the National Bank of Ukraine, Valerie Gontareva.

In particular the ultra-populist Oleh Lyashko and his Radical Party seem determined to take a scalp after the precipitous decline of the Hryvnia against the US Dollar over the past month or so.  The slight rise in recent days after the NBU raised interest rates from 19.5% to 30% is too little too late when populists are searching for a head to hunt.  That head, being the Head of the NBU.

Making a disclaimer, for those who may have forgotten, this blog is in no way supportive of Oleg Lyashko or the Radical Party – indeed it has an inherent repulsion for all populist politics.

As with all populists, Mr Lyashko wants a head to severe, put on a pike, and wave to the masses as some for of retribution in relation to the fall of the Hryvnia – this despite the fact he (and the Radical Party) could offer no alternative policies to those pursued by the NBU.

It is far easier to “mouth off” from the floor of the Rada than it is to take any personal responsibility by heading critical institutions.  That said, Mr Lyashko does have appeal – if you have had a full lobotomy and prefer form over substance, or enjoy the sight of fisticuffs in the legislature, or aggressive verbose rhetoric over critical thinking, or are so retarded you believe Ukraine can gain without suffering any pain in the immediate term.  If you are looking for the absurd within the theatre of the absurd, he’s your politician.

Perhaps in the next government reshuffle, he should be given an ego massaging impressive title – Deputy Prime Minister, or First Deputy Prime Minister – one that carries little policy directing/forming weight, but would nevertheless put him amongst those that the Ukrainian constituency would hold responsible for failures yet to come?  Alternatively, make him  Deputy Prime Minister, or First Deputy Prime Minister in any forthcoming reshuffle with the specific responsibility for reform implementation, forcing him to walk his rhetorical talk and suffer the consequences should he fail to deliver.

There can be no room for supporting the Radical Party that is simply a vehicle for the promotion of Oleg Lyashko’s ego.  Personality politics have failed Ukraine for the last decade and more, thus supporting any form of return to that state of affairs is entirely retarded.  Further, populists like Lyashko (and Ms Tymoshenko in her prime), have an ego that projects the idea that if you are not for them, you are against them – and if you are against them, then you are against “the people”.  A position that is both cancerous to democracy, and also absolute flapdoodle and codswallop.

Regardless – policy counts for far more than political party or political personality in a pluralistic parliament.  No matter where good policy comes from, it remains good policy – no different from ineffective or counterproductive policy.  Like not the packaging, but the product.

Having now vented over the odious populism of Oleg Lyashko, this entry is not written in defence of  Valerie Gontareva per se either.  However, to be entirely fair, Ms Gontareva has not exactly had the easiest of circumstances to navigate, or the national forex reserves, to do much more than she has.  Perhaps the only significant criticism this blog would raise, is that relating to not moving as swiftly as has been possible when it comes to liquidating banks that are a liability rather than an asset to the Ukrainian banking system.

Considering the sheer number of Ukrainian banks, a large number of which are small and almost unheard of, owned by (in various degrees of nefarious) wealthy Ukrainians with the sole purpose(s) of either laundering cash for the owners, or making large loans to the owners as and when they want to loan themselves other people’s money, the slow rate of liquidation of these entities, and thus confidence building in the banking system by their removal, is perhaps the only issue that could have been dealt with more swiftly – and robustly.

That said, 44 banks (of more than 100) have now gone into bankruptcy incurring losses upon Ukraine of almost 9% of GDP.  Thus there is perhaps a necessity to manage the speed at which such a cleansing occurs.

It may be that the NBU will act more swiftly now that a few bank owners may be less keen to own banks – whether those actions occur under the leadership of Ms Gontareva, or not.

Nevertheless, there is a real possibility that Ms Gontareva’s days as NBU Head are numbered.

Gontareva & Lyashko

Gontareva & Lyashko

It goes without saying that the Lyashko action against her displays exceptionally poor timing considering the IMF is yet to make a decision on a 4 year loan (though it seems likely it will be made very soon – and favourably).  To put into question Ms Gontareva’s position, who spent many hours in negotiations with the IMF, prior to a favourable decision, does not seem particularly clever politics (though populist politics are seldom clever).  How her departure from office will be viewed by potential investors is a serious consideration.

Ergo, if her head is to roll, it would seem unlikely to be within the next few days – but rather within weeks/a month.  There are enough wiser (and certainly cooler) heads than Mr Lyashko within the Rada to pay attention to the timeliness of her demise and the implications thereof – even if it seems her leaving is inevitable for the sake of holding together a constitutional majority coalition with the Radical Party.  There are many necessary constitutional changes to be made after all.

That she will still be in post by the end of April currently seems very unlikely unless a deal can be struck with Mr Lyashko and the Radical Party to call off the populist dogs.  Indeed, Ms Gonareva is far more likely to resign than wait to be pushed out.

The question that follows then relates to any replacement.

A return to a politically controlled NBU Head would not sit well with any lenders upon which Ukraine is now (and will be) reliant.  The perception of an independent National Bank is paramount.

In the frame then, former head of VTB Bank Vadim Pushkarev, or Chairman of the Board of “Raiffeisen Bank Aval” Vladimir Lavrenchuk, or former Treasury Secretary Alexander Shlapak, and Chairman of the Board of JSC “Oschadbank” Andrew Pyshniy?  Perhaps Sergey Yaremenko a former NBU executive?

The uncertainty now surrounding Ms Gontareva is not going to facilitate any return of confidence in the NBU over the coming days, or weeks, and that – in case Mr Lyashko isn’t aware – has an effect that in all probability puts more pressure on the Hryvnia.  Indeed it can be argued that Mr Lyashko and the Radical Party have added yet one more pressure on the currency due to populist theatrics – despite them having no policy alternatives themselves.

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