The consequences of Yakiv Smolii’s July 1 resignation as governor of the National Bank of Ukraine didn’t take long to be felt: The day after, the Ukrainian hryvnia dropped 1.3% (to nearly Hr 27/$1), Ukraine postponed a $1.75 billion Eurobond sale and the business community strongly criticized the circumstances of his departure.
Smolii said he was facing “systematic political pressure” that prevented him from fulfilling his duties until his seven-year term expired in 2025.
“I want my resignation to be a warning against further attempts to undermine institutional grounds of central bank in Ukraine,” Smolii said.
While he didn’t spell out the threats he faced, he didn’t really have to do so.
Ever since the central bank nationalized PrivatBank in December 2016, its former owner — billionaire oligarch Ihor Kolomoisky — has been waging a campaign of intimidation and lawsuits against the NBU.
After alleged insider lending and bank fraud emptied PrivatBank of $5.5 billion, taxpayers came to the rescue of the nation’s largest financial institution. But Kolomoisky has been trying to get the bank returned to him for four years. And Kolomoisky is believed to have strong influence over President Volodymyr Zelensky.
Smolii’s stewardship, which began after his predecessor Valeria Gontareva departed in 2017, is praised with restoring macroeconomic stability, lowering inflation and building up a healthy cushion of $25 billion in foreign exchange reserves — in a nation whose economy barely tops $150 billion annually.
But former owners of failed banks — and there were more than 100 of them — never forgave the central bank tandem of Gontareva and Smolii for putting an end to their orgy of bank fraud and insider lending at the expense of depositors and taxpayers.
Kolomoisky’s revenge
Kolomoisky initiated hundreds of lawsuits against the NBU, PrivatBank and other state bodies to overturn the nationalization. He has scored victories in Ukraine’s corrupt courts.
Judges are so unreliable that Ukraine’s politicians, under pressure from its largest creditor, the International Monetary Fund, passed legislation to prevent former owners of failed banks from reversing nationalizations or receiving compensation.
Kolomoisky is now trying to get the Constitutional Court of Ukraine to rule the law as illegal and is challenging the work of the state Deposit Guarantee Fund, which has seized assets of failed banks for resale. If Kolomoisky prevails, Ukraine’s banking sector could face the same sort of massive embezzlement and insider bank fraud that drove the banks into insolvency in the first place.
But Kolomisky’s war against NBU went beyond the courtrooms.
In the parliament, Kolomoiskyloyalist lawmakers have filed a draft resolution that — if passed — will launch an investigation of the NBU’s activities in 2014–2019.
Kolomoisky & Gontareva
Smolii’s predecessor, Gontareva, received death threats, was hit and injured by a car, and had her family house demolished in arson attack — assaults that she blames on Kolomoisky, who denies harming her.
Gontareva called Smolii’s resignation “a disaster.”
The final prize for Kolomoisky, however, would be having a loyal governor of the central bank who may do favors for the billionaire oligarch.
Possible successors
One possible successor is Bohdan Danylyshyn, acting chairman of the council at the NBU.
Danylyshyn has been serving on the council for four years and has criticized the board of directors. In January, he made headlines suggesting that the state come to an agreement with Kolomoisky over PrivatBank instead of suing each other.
Danylyshyn denied accusations of serving Kolomoisky’s interests.
However, at a private Zoom meeting, the NBU board of directors held with representatives of business associations on July 2, Smolii hinted that Danylyshyn was among a few reasons of his resignation.
Without naming Danylyshyn, Smolii said that some people within the NBU are putting pressure on him and his team. One of them, he said, is the chairman of the NBU’s council, which is Danylyshyn.
Smolii accused him of attempts to discredit the board of directors and interfere with their professional activities.
Danylyshyn was “surprised to learn that Smolii had resigned due to political pressure,” he said on Facebook on July 2. He also said that neither he nor his co-workers in the council felt any pressure from the country’s current or previous leadership.
Another candidate being bandied about is Kyrylo Shevchenko, chairman of Ukrgasbank.
Ukrainska Pravda media outlet, citing its sources, reports that two other candidates are under consideration: Volodymyr Lavrenchuk, former head of Raiffeisen Bank Aval and Tymofiy Mylovanov, former minister of Economic Development, Trade and Agriculture in the government of Oleksiy Honcharuk.
Argument with Zelensky
A few media outlets alleged that the resignation was preceded by an argument Smolii had with Zelensky.
According to Liga news website, Smolii decided to quit after he had attended the meeting of the National Reforms Council on June 30. This is where he met Zelensky and got involved in a conflict with him, Liga reports, citing anonymous sources.
Zelensky allegedly accused Smolii of keeping interest rates too high, although they’ve dropped from 8% to 6%. Zelensky favors a weaker national currency and lower-interest rates for consumers.
Consequences
On June 2, Ukraine canceled a $1.75 billion Eurobond sale due 2033 after Smolii’s resignation, says a publication on London Stock Exchange news service.
“In light of the recent headlines, Ukraine, represented by the minister of finance of Ukraine, has determined not to proceed with the proposed offering,” it reads.
The Ministry of Finance had finalized Eurobond deal just hours before Smolii stepped down.
Smolii leaving evoked negative reaction from financial experts and businessmen.
Tomas Fiala, CEO of investment firm Dragon Capital who is also the president of the 1,000-member European Business Association, said Smolii’s resignation would harm the price of Ukrainian assets and the currency.
“We will put new investments on hold as the authorities have been doing for the last five months exactly the opposite from what investors, both domestic and international, expect from them and advise them. This is the last straw,” he told the Kyiv Post in a message.
Similar concerns were voiced by the International Monetary Fund, the European Bank for Reconstruction and Development, and the ambassadors in Ukraine representing the G7 nations.
However, Zelensky tried to calm the international community.
“We emphasize that discussions around the activities of the National Bank of Ukraine should be based solely on the principles of professionalism and should be free of political connotations,” the statement says.
The independence of the NBU is an “unconditional priority” for Zelensky, the statement reads, and “prudent monetary and fiscal policies” have to be followed.
On July 2, Zelensky filed his draft resolution calling for Smolii’s removal in parliament. It was approved by the finance committee. Now lawmakers may vote as early as July 3 whether to accept Smolii’s resignation.
Smolii told the businesspeople that he will stay if parliament fails to muster enough votes for his ouster.
If he leaves, his deputy Kateryna Rozhkova will temporarily become acting head until Zelensky appoints a new person.
“The board of directors considers it its duty now to continue working to maintain macro-financial stability and institutional capacity of the National Bank,” the NBU said in a statement.
