Former National Bank of Ukraine governor Yakiv Smolii broke his silence and shared details about the political pressure that he says made him resign on July 1.
In an interview with LB.ua, published on July 6, Smolii said that President Volodymyr Zelensky’s administration and the Cabinet of Ministers routinely breached their authority by making demands of the National Bank, undermining its independence. Among them was a demand to lower the bank’s policy rate and stop curbing the inflation of hryvnia.
The pressure on the bank started last fall, he said, when a top NBU employee was arrested in October for soliciting a bribe. Smolii claims that the case was fabricated to harass the bank.
“They wanted to discredit the National Bank’s leadership and replace it with people who could be controlled,” Smolii said.
His disagreements with Zelensky reached a climax on June 30, when, during a meeting with the president, Smolii said he “sensed” that Zelensky wanted him to resign.
“I asked (Zelensky) whether he wants me to resign, and he said ‘yes,’” Smolii said.
Smolii’s comments reveal a disturbing breach of authority on the administration’s part. The National Bank is an independent body, governed by its council. Although members of the council are appointed by the parliament and president, the bank’s leadership is not subordinate to any other government agency.
Along with pressure from Zelensky’s office, Smolii said he suffered from a media campaign that aimed to discredit him. It was led by the TV channel belonging to oligarch Ihor Kolomoisky and his allies in parliament.
Kolomoisky has been fighting the NBU and Cabinet of Ministers over the nationalization of the bank he previously co-owned, PrivatBank. It had to be nationalized in 2016 after auditors found a $5.5-billion hole in its balance sheet and the government feared the possible collapse of the country’s largest bank could undercut Ukraine’s entire economy.
Kolomoisky probably has something to do with the pressure on the leadership of the National Bank, according to Smolii. But the ex-head of NBU avoided direct accusations.
“One can guess that Kolomoisky can be behind the (campaign against the bank), aiming to weaken the bank in the court cases (regarding PrivatBank) in Ukraine and abroad. But those are only guesses,” Smolii said.
At the same time, Smolii said that Zelensky never indicated that he was backing Kolomoisky’s interests.
“He never said anything that directly supported Kolomoisky’s interests,” Smolii said. “So there is no proof (that Zelensky acted in his interests).”
Previously, Zelensky denied putting pressure on Smolii.
“We had a very good professional and personal relationship,” he said at a briefing on June 4.
Pressure by the administration
According to Smolii, the Zelensky administration had been asking him to lower the NBU’s policy rate.
The rate indeed was a principal issue for the administration. It was lowered several times since 2019, starting at 18% and reaching the all-time low mark of 6% in June.
Lowering the policy rate is needed to push private banks into providing cheaper loans and mortgages to Ukrainians — something that Zelensky pledged to do. In May, the government launched a program of cheap loans for small businesses.
Smolii claims that the bank didn’t succumb to demands and lowered the rate independently, but admits that there was continuous pressure from Zelensky’s administration about the rate.
“So many times I received calls from the administration, asking: ‘Why aren’t we lowering the rate?’ he said.
Another argument concerned inflation. The NBU forecasted the inflation of the hryvnia at 5% in 2020, while the Cabinet of Ministers (forecasted it) at 11.6%. One dollar now sells for approximately 27 hryvnias, while the Cabinet forecasted it to sell for 29 hryvnia in the state budget.
“They wanted the inflation and the exchange rate to be at that level,” Smolii said. “Excuse me, but it’s not a professional conversation.”
Staged protests
Smolii said that in parallel with the pressure from the presidential administration, he suffered from the staged protests against him. He said that the protesters were mostly young people, and implied that they were paid to rally. Their only demand was Smolii’s resignation.
They camped near the National Bank and his house. Smolii said that he and his wife had to move to another apartment to avoid meeting them.
Among the protesters were employees of Kolomoisky’s ferroalloy plant in Nikopol.
At one point, Smolii requested protection from Interior Minister Arsen Avakov.
“I approached Avakov. Police stayed on duty near my house to prevent a conflict,” he said.
“The president knew about (the protests) too.”
Resignation and consequences
Smolii said there wasn’t one specific reason for his resignation or one issue on which he and Zelensky disagreed.
At his last meetings with Zelensky, they spoke calmly and didn’t argue, according to Smolii.
“Please understand that Zelensky didn’t tell me: ‘I’m done with you, go file a resignation.’ I just understood from the context that I had to resign,” Smolii says.
After this was decided on June 30, they met again on July 1 to discuss the transfer of authority and candidates for his replacement.
Smolii said that he asked Zelensky when he wanted him gone, now or in autumn, and Zelensky preferred for it to happen now. Smolii filed the resignation immediately, and Zelensky forwarded it to the parliament on the next day.
The hurry has to do with the fact that the parliament starts a summer break on July 17.
“The new head of NBU had to be appointed before the parliament goes on summer break to avoid a gap (when there is no NBU governor),” Smolii said.
Smolii said that they discussed his possible successors, but he refused to name them.
As for the consequences of his resignation, including the hryvnia fluctuations, Smolii says there are no reasons to worry.
“The currency market is very sensitive,” he said. “First comes the panic and people buy the currency (dollars). But we know how to handle it. The NBU sold $150 million on July 2 to curb the rate fluctuations, and on the next day everything was calm again. It’s a psychological reaction that needs to be curbed, and after that everything is fine.”
He also stressed that his resignation doesn’t threaten Ukraine’s cooperation with the International Monetary Fund.
“The IMF and the World Bank don’t work with people, they work with institutions,” he said. “Everyone is expecting what the new governor of the NBU will have to say. If he doesn’t change the NBU’s policies, preserves its independence, maintains a floating exchange rate, doesn’t print money — that would be a satisfactory signal.”
His resignation also won’t change anything for the PrivatBank court cases, according to Smolii.
“One person doesn’t decide anything at the National Bank,” he said. “If someone has hope that a new governor of the bank will dramatically change the situation (for the former owners of the bank), they shouldn’t hope for it. No decisions at the National Bank are taken single-handedly.
What is next for Smolii? In the interview, he was only certain about the things he doesn’t want to do.
“I told the president I don’t see myself in politics,” he said. “And I’m not planning to leave Ukraine.”
