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64 Opinion
bne May 2017
This resulted in certain tycoons losing their licenses and being forced out of the banking business, something that was unthinkable prior to Gontareva’s term. Of course, this was immediately followed by strenuous outcry from some experts, lobbyists and politicians, who blamed all the woes of the deep recession on the central bank governor. That she endured threats to her life is well documented. As the FT reveals, one occurred during a face-to-face meeting inside the gothic palazzo-style central bank building itself.
Sadly, Gontareva now feels her mission is accomplished, and she has announced plans to step down on May 10.
The next big test will be whether a new, technocrat central bank governor will permit a return to business-as-usual
in the commercial-banking sector. The very people who corrupted the banking system and who “still dominate” in politics and the media, as Gontareva says in her FT interview, will both test and influence her replacement.
Their aim is to soften the current rules on commercial banks' recapitalisation and oversight. They are promoting the now- popular narrative that bank lending should fuel Ukraine’s economic growth of at least 7% a year on average over the next decade and beyond. I see this as a coded message to green light a return to the business-as-usual that Gontareva fought against.
In my view, a key weakness of Ukraine’s central bank is its view that commercial banks are intermediaries, i.e, they take depositors’ money and channel it to borrowers for a profit.
Instead, Ukraine’s central bank should pattern itself on the Bank of England, which explicitly treats commercial banks as money creators that do not wait for deposits to be provided by the clients, which later will be lent to willing borrowers; instead, banks create deposits by lending.
Viewed through this lens, insider lending by local bank- ers takes on a new meaning, to say the least. The threats of physical violence against Gontareva as reported by the FT are an indication of the corruption of bankers who want to regain the ability to create money by their own actions and for their private use, as they had been doing.
I have some advice for Gontareva’s replacement. Treat commercial banks as money creators, as the BoE does, and abandon the banks-are-intermediaries narrative. This should win the public’s support while at the same time dealing with corrupt bankers who used their influence for personal gain. The NBU needs the support of the public
to complete Gontareva’s mission: end insider lending, prohibit sub-zero capitalisation and fight fraudulent accounting practices.
This would translate into a public support of the new mon- etary regime introduced under Gontareva with a managed
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float of the hryvnia in the FX market and operational control over short-term interest rates, which is under the threat of being dismantled by the opposition. It would also eliminate risk of massive runs on local-currency reserves that hap- pened in the past by those same bankers who converted them into foreign-currency reserves, depleting the country’s official FX reserves.
On March 15, 2016, former US State Department official Victoria Nuland testified at the Senate Foreign Relations Com- mittee that “2016 can and should be the year Ukraine breaks free from the unholy alliance of dirty money and dirty politics, which has ripped off the Ukrainian people for too long.”
I heartedly agree with Ms Nuland. No return to business as usual in 2017 and beyond. Otherwise, mission not accomplished.
Alexander Valchyshen is head of research at ICU, a Kyiv-based financial services group that provides investment banking, secu- rities trading and asset management for private and institutional investors, which was co-founded by Valeriya Gontareva. He
was formerly head of macro/fixed income research for ING in Ukraine. Follow him on Twitter at @AlexValchyshen
bne has a full roster of columnists and opinion-makers, among them:
Mark Galeotti Liam Halligan Suna Erdem
Chris Weafer David Cecire Ben Aris Selected headlines from the past month:
· Russia’s 20/20 tax vision.
· Ukraine’s anti-corruption agency shows its teeth with new
detentions.
· Nuclear deal looms large as Iran’s presidential election
approaches
You can find all bne’s comment at
www.intellinews.com/opinion