National Bank of Ukraine (NBU) Governor Yakiv Smolii submitted his resignation on July 1 in what was widely seen as a major blow to Ukraine’s reform agenda. In his resignation letter, Smolii cited “systematic political pressure” as the reason behind his departure. The nature of Smolii’s exit raises serious questions over the continued independence of the NBU, which has been credited as a key factor behind Ukraine’s macroeconomic stabilization in recent years. Smolii, who had been at the helm of the NBU since 2017, enjoyed a strong reputation in business and financial circles for his role in taming inflation and ensuring currency stability.
News of Smolii’s resignation sparked alarm in Ukraine and among the country’s international partners. “Under his leadership, Ukraine has made important strides in achieving price stability, amply demonstrating that an independent central bank is a key element of modern macroeconomic policymaking,” said an IMF spokesman in a statement. “That is why the independence of the NBU is at the center of Ukraine’s IMF-supported program, and why it must be maintained under his successor.”
It is feared that the departure of the NBU governor could now derail Ukraine’s recently agreed USD 5 billion deal with the IMF, which was designed to help the Ukrainian economy overcome the shocks of the coronavirus crisis. The initial market reaction to Smolii’s resignation was negative, with the Ukrainian government forced to cancel a planned USD 1.75 billion bond sale and the hryvnia currency falling by over 1% to its lowest level since April.
Roman Waschuk, Former Canadian Ambassador to Ukraine: Warning shots from G7 Ambassadors; a chorus of Western disapproval; Eurobond issue pulled; glee on the part of Kolomoiskiy and Yanukovych operatives; and lightning-fast implementation of NBU Governor Smoliy’s resignation letter by the often ponderous parliamentary machine. This flurry of events over the past twenty-four hours in Ukraine forms the latest chapter in the demolition derby that has hit the systemic reforms of the Maidan period since President Zelenskyy entered office last year. Healthcare and education were targeted first, with policy-driven Western-oriented ministers and deputies replaced by youngish but reliably malleable post-Soviet “fixers”. With the presidency now apparently a transactional policy-free zone, vested interests are having a field day, including in the financial sector. As foreshadowed in Zelenskyy’s hit TV series “Servant of the People”, we are now witnessing mounting resentment at Western lecturing and financial strictures, which are derided as “external control”. This has culminated in effectively telling the IMF and international investment community to go to hell, after having first pocketed an initial IMF tranche of USD 2.1 billion. This is emotionally gratifying, perhaps, but fraught with macroeconomic peril in a world that is entering what is likely to be a prolonged coronavirus-inspired economic crisis. One year ago at the Toronto Ukraine Reform Conference, we tried to show President Zelenskyy the benefits of maintaining financial stability and an open economy. Unfortunately, between the Ukrainegate impeachment scandal and the pandemic, there hasn’t been much leader-level positive Western engagement (Chancellor Merkel excepted) since then to counter the self-interested populist nativism being peddled to Zelenskyy by his oligarchic whisperers.