The three year saga of passing the law on the National Bank (NBU) has ended
in the bank's defeat. Its aim of putting the status quo in a legal basis,
under which both NBU governing bodies (Board of Governors and Board of
Oversight, the latter formed on a volunteer basis) are to be headed by
one person with complete responsibility for the central bank's monetary
policies, ran into "other views" from lawmakers.
Last Thursday 237 votes were cast to authorize the NBU Board of Oversight
to instruct the NBU Board of Governors what to do and when to do it in
terms of monetary and credit policy. The fulfillment of all such instructions
is mandatory (!) on the Board of Governors (for ignoring them "the NBU
head can be relieved of his post by request of the President of Ukraine"),
while, according to Viktor Yushchenko, "the law does not envision responsibility
of the NBU board for decisions made and subsequent actions."
It is worth noting that Mr. Yushchenko's main opponent, chairman of
the Verkhovna Rada's provisional fact-finding commission on NBU activities
Viktor Suslov, who provoked the bill's passage with his report, told The
Day he had personally voted for the system proposed by the National
Bank. "Here the NBU is right," he said, "but they should have clearly outlined
the board's functions. The deputies decided otherwise. This will only exacerbate
the struggle."
Indeed, extremely hard bargaining is in store over effective and, most
importantly, unlimited influence on Ukraine's central bank. The NBU Oversight
Board will include seven representatives of the President and the same
number from Verkhovna Rada. It is expected that the President will appoint
above all such executive officials as Deputy Premier Serhiy Tyhypko (former
Privatbank CEO), Minister of Finance Ihor Mitiukov (whom Leonid Kuchma
blamed last fall for almost single-handedly creating the government bond
pyramid), and Minister of Economics Vasyl Rohovy. No less interesting is
who Parliament will name as its "overseers." They will, no doubt, include
former bankers who, after being elected to Parliament, often remained "honorary"
chairpersons of their banks' boards. The Board of Oversight is most likely
to include chief NBU investigator Suslov and members of the pro-Kuchma
United Social Democrats. Testifying to this is the fact that the leader
of precisely this party, Viktor Medvedchuk, as if ignoring the warnings
by the President himself, repeatedly hinted that the fact-finding commission
"had not dug enough" where, admittedly, there is still much work to be
done.
Mr. Suslov, who has put up a trial balloon in Parliament, thus has a
victory to celebrate. He can also add to his list of victories the future
dismissal of the NBU first deputy chief Volodymyr Bondar. He has not yet
been fired, but, according to Mr. Suslov, Mr. Yushchenko has already made
a request to this effect. "I'll tell you straight," Mr. Suslov told The
Day, "Mr. Bondar's signatures are under all dubious operations on placing
currency reserves. There are no signatures of Mr. Yushchenko anywhere.
When the storm caused by our report subsided, Mr. Yushchenko must have
conducted an internal inquiry and decided, as a result, to dismiss Mr.
Bondar..." Mr. Suslov does not seem bent on stopping, and he very much
expects the President to sign the National Bank law.
Mr. Kuchma, for reasons well known, must be interested more than anybody
else in keeping the current NBU governor on a short leash. Mr. Yushchenko
himself, utterly exhausted by the political intrigues surrounding his own
post and access to the money printing machine, can, of course, offer his
resignation. Should this happen, he will take the blame for everything.
But Mr. Kuchma is unlikely to let him go before October (remember that
the NBU chief can only be dismissed at the President's request). Other
resignation options - change of citizenship, inability to fulfill his duties
for health reasons, etc. - are unlikely to interest Mr. Yushchenko. Hence
the nation's top banker will have to work with, obey the decisions of,
and strike deals with the Oversight Board, although he said incautiously
immediately after the vote, "I'll think it over."
Others, the President in particular, did the thinking. Last Thursday
he already signed an instruction, On Additional Measures to Stabilize the
Socioeconomic Situation in Ukraine, according to which "the Cabinet of
Ministers and the National Bank are instructed to take measures by September
1 in order to cut the bank loan interest rate by 10%." The President seems
indifferent about how this is to be done and whether dropping the rate
is wise in today's economic situation. This is completely the problem of
Mr. Yushchenko, whose arguments will now be even less heeded by the Presidential
Administration and Parliament. Moreover, as Interfax-Ukraine has learned
from an informed source in financial circles, the NBU increased the money
mass by UAH 1 billion from April 20 to May 11. The Day's correspondents
are still exploring the details of this operation, but it is clear even
today that it was this abrupt jump in the money mass that brought down
market interest rates (the overnight interbank loan rate was 8-9% annual
interest in mid-May vs. 30-40% a month earlier).
PS: We do not yet know the reaction to the law from our foreign
creditors (Kyiv, for example, is still waiting for the World Bank's $100
million to reform the financial sector). However, the NBU believes the
"new form" of determining monetary and credit policy "will impact negatively
on further cooperation with international financial organizations," which
bet on the image of the well-known professional banker Yushchenko. As to
the discount rate, it was slashed last Monday to 45%.







