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Ash believes that the SBU comments were also aimed at Smolii and Churiy as well as the rest of the board should they decide to quit in protest at the changes, to prevent them from criticising Zelenskiy and raising further red flags over the erosion of NBU independence.
Zelenskiy has sought to calm nerves and​ ​met with the leading state banks​ last week saying that there was no reason to panic after the meeting.
“I had three big discussion meetings as part of a professional dialogue. I met with all the heads of state banks of Ukraine, I wanted to get a candidate [for the head of the NBU] from them. And their personal impression in connection with this situation. All quite calmly accept the dismissal of the head of the NBU. Everyone does not see the risks,” Zelenskiy said following the meeting.
However, tellingly Zelenskiy also openly criticised central bank monetary and exchange rate policy, saying the current exchange rate was too strong and that a level of UAH30 to the dollar was more appropriate. The value of the hryvnia promptly fell following his remarks and was trading at UAH30 to the dollar at the time of writing.
He has argued in favour of the oligarchs that the NBU has kept interest rates too high and the currency too strong at the expense of industry. The big business earners would like to see a devaluation as that will increase their export earnings. And even if the hryvnia is worth less, as their earnings are in dollars they don't care.
Kolomoisky has said openly that Ukraine doesn't need an IMF deal at all fully away that without the deal the currency would sink, the people would be impoverished, but his profits would increase.
And in another attack on the NBU’s independence the Constitutional Court will rule that the law setting up the Deposit Guarantee Fund (SDIF) is unconstitutional. If this decision goes through then it will mean in effect much of the banking clean up process from 2015-17 was unlawful and that will give grounds for the owners of all the 100 banks closed in those years to sue the government, first and foremost PrivatBank that formerly belonged to Kolomoisky.
The NBU was one of the very few outstanding success stories in Ukraine in the last six years. The bank sector has been cleaned up and over 100 dodgy banks closed. The huge non-performing loan (NLP) problem – half the loans on bank’s books are bad – has been dealt with through provisions. The macro-fundamentals have stabalised thanks the central bank policies and both inflation (1.7%) and the prime rate (6%) are at post-Soviet all time lows. And the NBU has even managed to start building up the countries hard currency reserves, which currently stand at $28.5bn, or a comfortable 4.5 months of import cover.
All this progress is now in danger as Smolii’s departure in of itself undermines the independence of the regulator, sacrosanct to the International Monetary Fund (IMF). Analyst say that now the remaining $3bn from the​ ​$5bn Stand By Agreement (SBA) agreed on June 9​ is unlikely to be released. That in turn will prevent another $3bn-$4bn from being released by other International Financial Institutions (IFIs). And that in turn will probably cause, at the least, a deep devaluation of the currency as the NBU will be forced to raid the
9​ UKRAINE Country Report​ August 2020 ​ ​www.intellinews.com