(Continued from Title page)
The Day: Do you mean that the National Bank got out of line acting
as an interpreter of legislation?
V. F.: Not only that. Following its own logic, NBU had to cancel
all commercial banks' licenses. There is no ECU, so not a single bank has
an authorized capital stock of one million ECU. NBU not only interprets
the law, but also acts in ways very dangerous to the state.
The Day: Aren't you being a bit too formalistic in your approach?
V. F.: How can one be formalistic if the country's most competent
financial organization makes an official statement like that (and Mr. Soltys
said they were prepared to issue a written statement)? They are setting
a precedent. For example, the tax on alcoholic drinks and cigarettes is
over 90%. Just imagine what will happen if they stopped paying this tax.
By the way, the meeting was attended by Oleksiy Shytria, Deputy Head of
the State Tax Administration. He said that, hearing such statements from
the National Bank, one can believe that anything is possible in this country.
The Day: Yet this is a potential threat, isn't it? Are there
any new facts in the commission files?
V. F.: Yes, quite a few. They will all be cited in Viktor Suslov's
report. At the moment I can only refer to some of them. For instance, huge
stabilizing loans to Inko Bank. On what grounds? Where is all that money?
And there was so much I won't even try to specify, something like a trillion
karbovantsi (the previous Ukrainian currency). From what I know there was
no love lost between the then Inko management and NBU. They were very displeased
by its policy and the manner in which NBU ordered them to use those loans.
The Commission also came across evidence pointing to an NBU mixed interest
loan ($100 million) to the Russian Gazprom Bank, using foreign exchange
reserves. It was never repaid and no one knows if it ever will be, especially
considering that securities (presumably Gazprom obligations) were used
as collateral and that their market value is about 15-20% of the loan.
Why should one bother repaying it then?
One other thing is totally flabbergasting: two tranches of the DM 175
million purpose loan to the Ukrayina Bank in 1996 for compensation payments
to Ostarbeiters (persons taken by the Germans for slave labor in World
War II). If a commercial bank failed to properly manage a loan given it
by the German government, what is to be done with the Ukrainian state,
National Bank or Ukrayina Bank?
The Day: There seem to have been appropriate government decisions
in that case.
V. F.: Great. Then the question is whether the Ostarbeiters will
receive that money from the National Bank? No, because this money was used
to buy domestic government bonds, and the Ostarbeiters were paid out of
bond yields, a very small percentage of the original amount. Besides, we
have reason to suspect that the Ukrayina Bank never repaid the loan. We
are still investigating the case. As I said, there is a great deal of work
ahead.
However, we are fully informed in another case, namely how the NBU supports
the hryvnia rate. They are using their favorite method, boosting what the
hryvnia costs. How? Quite simply. Setting the NBU discount rate 3-5 times
higher than the inflation rate, although everybody understands that these
indices should differ only slightly in order to keep the economy ticking.
Well, no one seems concerned about this here and the fact remains that
the economy will not tolerate such an inflated foreign exchange value.
Every textbook everywhere in the civilized world reads that high interest
rates are extremely hazardous to the economy. But the National Bank of
Ukraine thinks otherwise, although it can produce no practical argumentation.
This tactic is allegedly meant to save the hryvnia, but Ukraine's economy
testifies to the contrary.
The Day: Has anyone tried to compute the consequences if the
NBU were to sharply decrease the interest rate?
V. F.: This is something the National Bank should do itself in
the first place. Now does it have this analysis? We do everything according
to the principle of patching up holes when they appear. Now the time seems
just right to lower the rate. We have received loans from international
financial institutions, and the hryvnia has even shown a little growth.
There is also growth in foreign exchange reserves, yet the interest rates
remain sky-high. Result: the Ukrainian economy is deprived of all current
assets. No one pays any money, instead the settlement of inter-enterprise
arrears is practiced everywhere. All this is because we do not have a normal
emission policy. If we did and if such emission were carried out according
to schedule, we would have real stability - I mean the national currency
fluctuations would be predictable.
The Day: Has the Commission come into possession of fresh
evidence indicating how exactly the foreign exchange reserve shrank?
V. F.: Let's wait for the report. I have no right to disclose
this information. All I can say is that we have a lot of information, names
included, and this, in turn, raises a lot more questions and brings more
facts to light. You can't even imagine how interesting this evidence is.
The Day: Many see intrigue, even in what they assume is Viktor
Suslov's intention to get into the NBU Governor's seat, claiming this explains
your Commission's exacting approach.
V. F.: You may have noticed that Mr. Suslov has not made a single
statement on the matter. In fact, he wants his report to be publicized
on the broadest scale, because he believes that not only the National Bank's,
but also Ukraine's prestige is at stake. Just imagine: the Commission cites
facts and figures, names names, and all it gets by way of response is something
akin to hearsay.
Or consider this: the National Bank issued loans at interest rates lower
than even its own discount rate. You will never find a precedent anywhere
in the world. This alone caused the state to lose over Hr 90 million.
The Day: Did the NBU have any formal reasons for issuing such
loans, say, Cabinet resolutions or something?
V. F.: Yes, but on very rare occasions. In most cases such loans
were effected as decided by the NBU Board.
The Day: But maybe instructions were given by phone? You know
that we still have this Soviet nomenklatura practice (called the "phone
right")?
V. F.: Could be, but if so the NBU leadership should say so.
The Day: No such statements have been made, is that right?
V. F.: There have been several statements relating to certain
issues, like, the Finance Ministry said we must do this and that. We accepted
them as argumentation, but in most cases it was absent. More often than
not we would hear such as we did it because we decided it was the right
thing to do.
The Day: Did this have anything to do with subsidies to enterprises
or monetary injections into certain industries?
V. F.: No, since 1995 the National Bank has been issuing soft
credits either for the government or commercial banks. And quite often
those loans were never repaid. NBU currently shows a debit balance, and
this considering that the Cabinet still owes the Bank Hr 13 billion, and
these are actually bad debts and must be referred to losses. This fact
alone definitely refutes the suggestion that the NBU is doing fine.
The Day: Is there any practically opportunity to exact these
debts from the government?
V. F.: You see, this is not the point. The strange thing is that,
given a credit balance, the so-called revenues are used to build luxurious
palaces. Take the baths and the head office of the National Bank. A palatial
structure to all extents and purposes. Or the high-rise hotel in the center
of Kyiv (without guests). Buying and repairing it required a lot of money.
Where did it come from? And the Commission estimates the project cost Hr
7 million. All this superfluous luxury is quite confusing under the circumstances.
Could they use this huge empty hotel, meant for top-level bureaucrats visiting
the capital now and then, to accommodate children who were victims of the
floods in Transcarpathia? No one has even considered the possibility.






