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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Predecessors bear the blame for nine and successors for ten hryvnias per dollar

Oleksandr SAVCHENKO: “I would advise Kubiv to shut the interbank market on Monday to stop cash speculations”
4 March, 2014 - 11:37

There are not many people in the Ukrainian banking circles, whose opinions and advice are reckoned with. One of them is Oleksandr Savchenko, twice deputy governor of the National Bank of Ukraine (NBU) in 1991-92 and 2005-09, former finance minister, now rector of the International Business Institute. He used to be in charge of currency control and licensing, risk control, and international credit line projects at the NBU. It is he who worked out the basics of a new monetary policy at the dawn of an independent Ukraine. He was dismissed in 2009 for opposing the exchange-rate, monetary and crediting policies of the then NBU governor Volodymyr Stelmakh. Eventually, the national regulator’s course led to currency destabilization and an economic slowdown. What is going on now in Ukraine’s banking system? How can the “currency fire” on the interbank market be put out? How can this country be drawn out of a pre-crisis situation? These and other questions were discussed in an exclusive interview with Oleksandr SAVCHENKO.

What do you think about the appointment of Stepan Kubiv as NBU governor?

“Usually, central bank heads are well-known economics professors who have practical experience of working as advisors to presidents, premiers, or national bank governors. They are supposed to be very knowledgeable about macroeconomics. This is an unwritten rule in, say, the US and the UK.

“In Ukraine, the newly-appointed National Bank governor is a manager who I hope will manage to learn the general economic theory in a short time and put it into practice. To be successful, he should team up with people who specialize in finances, the theory and practice of monetary policy. At the same time, he has proved by his public activities in the past three month that he has high moral and ethical qualities. I think that, instead of criticizing him now, we should give him a chance and help him, if necessary.”

Is Kubiv a technocratic boss?

“He is the example of a political, rather than technocratic, boss. He is member of the Fatherland party and one of the Maidan leaders.”

If you are invited to come back to the NBU, will you agree?

“I will not agree to be a deputy governor, but I could work as chairman of the NBU Board of Directors or advisor to the governor. It is now the moral duty of all intelligent people to help more and to criticize less.”

As far as I know, you are going to meet the NBU head very soon. What measures will you advise him to take in this situation?

“Firstly, he should work on Saturday and Sunday with leading practical bankers and draw up a new NBU concept by Monday. Clearly, under different (not revolutionary) circumstances, one could not assume the office of national regulator’s head without having a plan like this for the first 2-3 weeks and a year. But we have what we have, and professional banking experts must help now. This is what Ronald Reagan, Margaret Thatcher, and other prominent figures used to do. Secondly, I would advise Kubiv to shut the interbank market on Monday in order to stop cash speculations.”

Do you think major currency rate fluctuations is quite an expected result of the hryvnia being allowed to float or is it a dangerous signal because the causes are in something else?

“Economic phenomena are always a combination of factors. In this case it is a combination of irresponsible administrative measures, lack of an NBU policy in the crisis, and a ‘vacuum’ in the Cabinet. Currency market fluctuations result from the expected weakening, not a floating rate, of the hryvnia. The floating rate is still very far away.”


In other words, the cause of the hryvnia’s lower rate is devaluation?

“The rate of nine hryvnias per dollar is the result of an ill-considered policy of the ‘predecessors,’ and that of more than nine results from inaction or lack of an adequate macroeconomic policy on the part of the new authorities. The first thing the new majority should have done was to state absolutely clearly the basic principles of the monetary, fiscal, and foreign economic policy – in other words, to form a government of technocrats. Failure to do that is a grave mistake for which we will all have to pay.”

Why are you saying that the national currency is not floating? The NBU said, on the contrary, that they had unpegged the hryvnia.

“The floating rate is an element of the inflation targeting policy. The NBU’s noninterference into interbank bidding is not enough. In other words, the National Bank must assume responsibility for price regulation and economic crediting stimulation by way of a correct assessment of the interest discount rate. Only then is the floating exchange rate possible.”

What will you advise the NBU to do in these conditions to ease the pressure on the hryvnia’s rate?

“Firstly, to resort to a stricter regulation of the demand for dollars and hryvnias on the market. It is an intermediary stage that must be passed by means of a policy of the adequate refunding of commercial banks. For the most pressing issue now is not the exchange rate but the fact that there is an outflow of deposits from many banks, they have no money to pay to their clients, and there are signs of a pre-crisis situation. So the NBU should ensure their liquidity but see to it that these interbank hryvnias are not spent on buying dollars and that the rate does not go up. Hundred-percent control should be imposed on all the hard-currency purchase requests from refund recipient banks. It requires real skill to do so. And, like a conductor, the NBU head must know when to take a higher or a lower note, when the orchestra should play more loudly or more quietly. This period will last 2-3 weeks.

“Secondly, to cancel the horrible resolution No.49, one of the factors that caused the currency panic.”


“Thirdly, talks should be held with all the financial-industrial groups and oligarchs who have slowed down the inflow of hard-currency earnings under export contracts. They do not know what will be next, whether or not their property will be nationalized and they will be able to live in peace in Ukraine. In my view, they must be told in clear-cut terms: what has been brazenly and unlawfully stolen from the state in the past 2-3 years will be seized, but all the rest will remain intact. There should be a moratorium of sorts. In no case should a witch hunt be announced – otherwise, Ukraine will never see oligarchic capitals in the shape of investments. They will remain where their owners smuggled them to in time.

“But these are just preventive measures. The main thing that will calm the populace and business is the prestige of the NBU run by an efficient governor and a strong team of specialists.”


You say that refunding is one of the NBU’s rescue instruments, but this will provoke devaluation…

“The more the banks are refunded, the greater the devaluation. But in this case refunding is to stop the bankruptcy of Ukrainian banks. This is the main point. Every day of delaying to pursue a clear monetary policy results in billions-worth losses, and it is very difficult to shift the blame to the ‘predecessors.’ There is still time to stabilize the hryvnia. If this time is used ineffectively, the IMF and European experts will come to ‘twist the NBU management’s arms,’ and the exchange rate will be not within 9 hryvnias a dollar but may reach 10 or even 12.”

Given the limited state budget revenues and a reduced inflow of investments, does the NBU have an option other than switching on the printing machine so that the Cabinet can meet its financial commitments?

“There is no other way out. I think that, unfortunately, the NBU will have to print 10-15 billion hryvnias within a week. But I am not one of the critics who say that emission is total evil and a stimulus for inflation. As people lack money now to buy elementary things, such as food and clothes, I don’t think the market will strongly react by a growth of prices if the demand for goods increases a little. There may be inflationary and non-inflationary emission. In this case, it is the latter. If emission is held in a balanced way, prices will rise at a minimum.”

By Natalia BILOUSOVA, The Day