Secrets of National Bank Query

Verkhovna Rada’s special fact-finding commission set up to investigate National Bank (NBU) activities is finishing its work. With one more sitting to go, the commission, headed by Viktor Suslov and composed of Natalia Vitrenko, Oleksandr Yeliashkevych, Anatoly Stankov, Bohdan Hubsky and other People’s Deputies, is to make public its findings.

In the meantime, everything is shrouded in the secrecy of an investigation based on a Security Service (SBU) memorandum sent in October last to Verkhovna Rada Speaker Oleksandr Tkachenko. The document leveled charges against NBU Governor Yushchenko and also assessed the actions of NBU executives following certain “operative and investigative measures.” The incriminating points are: a soft monetary reform which prevented the NBU from managing the payments crisis, premature lifting of restrictions on stock exchange transactions, and creation of favorable conditions for abuses after renewing currency regulation. By far the gravest accusation is that the central bank conducted too risky and/or unprofitable operations with hard currency reserves (according to NBU data, they plunged to $685.5 million at the beginning of this year vs. $2.27 billion in early 1998). As the memo states, “NBU Head Viktor Yushchenko should have known about (and controlled) the mentioned operations with hard-currency funds, whereas he only came to know (in his words) about the risky nature of contracts concluded by Mr. Bondar when IMF experts were examining the quality of reserves.”

Then experts asked whether the information leak was sanctioned and aimed at masterminding Mr. Yushchenko’s ouster, thus shifting to him the blame that should in fact have been taken by the Ministry of Finance and the government for an unsuccessful monetary policy.

In an interview with the fact-finding commission secretary Volodymyr Fialkovsky, The Day’s corespondent tries to lift the veil of secrecy over the parliamentary investigation.

“In my opinion, the leak was the SBU’s handiwork, although it won’t admit it. Moreover, they did not really participate in the commission’s work, saying: ‘we gave you materials, so please check them.’ They got off with very vague statements,” says Mr. Fialkovsky.

“Could you specify the main charge against the National Bank?”

“As the country’s central bank and central financial institution, it in fact makes decisions about the utilization of national property on its own. This is not an accusation against the NBU directors: for want of the legal framework, it was forced to act this way. But still, National Bank employees are not civil servants and thus are not covered by restrictions imposed on the latter, such as the law on combating corruption. No one but the Bank itself approves its estimated expenditures. What is more, this estimate was not even officially presented for Verkhovna Rada consideration.”

“What documents regulate the storage of National Bank hard currency reserves in foreign banks?”

“The instruction was written in 1995 by NBU Vice President Bondar. He himself also acted under and violated this instruction. Thus a person practically beyond any control made unilateral decisions on how to utilize the country’s gold and hard currency reserves, guided by an instruction of his own authorship. I am not saying he did anything unlawful. This may only be decided by the commission which will soon make its findings public. But the situation is clearly abnormal in itself. Naturally, the National Bank has some arguments in its favor. You will shortly hear our official assessment of them. All I can say is: the existing legislative field allows the country to suffer fundamental losses. If Mr. Bondar suddenly wanted to transfer all Ukrainian gold and hard currency reserves to a certain numbered account, he would have been fully able to do so. Fortunately, this did not happen.”

“Did the commission study only the problem of hard-currency reserves?

“No, the range of our investigation was wider than the SBU tip. In all directions, we raised questions, although the NBU justifies its actions by interests of state and considers them the best possible. We will know soon from the commission’s report to what extent this is true. But what should our attitude be toward the NBU having unrecoverable loans? Who should be held responsible? Let alone the loans to Hradobank and Renaissance. Now the Ukraina Bank is on everyone’s lips. But few know that the NBU often issues loans at interest rates lower than its own banking rate. This amounts to trading at its own loss. Numerous cases of this kind have been noted and will be made public soon. The question is again who should be held responsible and to what extent. Is it worth justifying the failure by commercial risk? For the amounts are very large, and the money was taken from the people. This all I can tell you: the rest remains secrets of the investigation. As soon as it is officially feasible, your readers will be fully informed.”

“Did the NBU try to hide the truth?”

“In my opinion, even if there were such attempts, I failed to notice them. Messrs. Yushchenko, Stelmakh, and Mr. Bondar answered our questions under oath, although we, naturally, not always shared their reasoning.”

Commentar

Viktor Lysytsky, advisor to the NBU head:

“Most charges against the National Bank proceed from the rejection of the bill On the National Bank, tabled long ago by Verkhovna Rada (no one knows when the second reading will be conducted). And members of the fact-finding commission know this all too well, as is shown by their interviews. It is easy to find objects of criticism under suck legal conditions. All the more so if criticism is based on concepts typical of an administrative command system. People’s Deputy Fialkovsky imagines the banking system is still the way it was in the Soviet Union, where there was the State Planning Committee which planned State Bank emissions, while this Committee was under the Cabinet of Ministers, and the Politburo towered over them all. In the long run everything was decided in the seat of the Central Committee. It was then quite a simple system. Now, any attempt to introduce control over the National Bank can only signify a yearning to return to the old days. Let me draw your attention to the fact that the degree of a central bank’s independence is directly connected with the country’s well-being. Most independent are the central banks of Germany and Austria, let alone the US Federal Reserve System. And these countries enjoy the world’s highest standards of living. But we still see continuing efforts to regulate the banking system, proceeding from the old premises that had existed before Article 6 of the Soviet Constitution (safeguarding the leading and guiding role of the Communist Party — Ed.) was canceled. Some are again seeking a “nucleus” which could control everything imaginable. To forestall any possible abuses (I am sure there were none in the NBU), a law is required to protect the National Bank from outside pressure. The bad loans featured in the interview were issued precisely because that was in line with Cabinet and Parliament decisions on supporting certain enterprises or industries, granting rehabilitation loans, etc. Therefore, the fault lies not with the National Bank but with the rudiments of the planned-d istributive economy, which are still entrenched in this country.”