Ukrainian Central Banker Warns Revamp Risks ‘Substantial’ Damage

(Bloomberg) -- The shakeup at the top of Ukraine’s central bank last year risks harming what had become the country’s most respected institution, according to a deputy governor.

Dmytro Sologub, who’s held his position since 2015, sees changes by new head Kyrylo Shevchenko to personnel and decision-making as detrimental to its effective operation with the pandemic showing no signs of letting up.

What’s more, he says the effects of the governor’s revamp may further delay the next tranche of a $5 billion loan from the International Monetary Fund, which helped restructure Ukraine’s central bank after a pro-European revolution six years ago. The bank has since won international plaudits.

“It’s important for the bank to preserve and build on the success we’ve had,” Sologub, 42, said this week in an interview in Kyiv. “We’ve seen proper monetary policy and other processes working well. But I believe cracks in the bank’s collegial decision-making system and, honestly, a lack of professionalism in some positions, may lead to substantial problems a few years down the road.”

Responding to the criticism, the central bank’s press office defended its personnel changes and said decision-making remains collegial.

“All central bank employees should be a team of like-minded professionals,” it said by email. “We’re very well aware of the central bank’s main asset -- the trust in it that’s is based on consistency and the clarity of its policy.”

Shevchenko was appointed after the previous Governor Yakiv Smoliy, who was popular among foreign donors and investors, complained that politicians including President Volodymyr Zelenskiy were seeking to meddle in the bank’s activities. While the new chief has pledged to protect the bank’s independence, he moved quickly to replace three of his five deputies as well as staff in less senior positions.

Sologub and fellow deputy Kateryna Rozhkova are the last remaining board members from the old team, which was praised for shutting down questionable lenders, adopting a flexible exchange rate and switching to inflation targeting. They were reprimanded in October for giving interviews to local media -- violating what Shevchenko called the bank’s “one-voice” policy. They’ve also had their remits altered without consultation.

“When the governor came in, I made a number of suggestions and recommendations regarding governance, relations with the IMF and so on,” said Sologub, who doesn’t plan to seek a new term after the current one expires in July. “Unfortunately, those recommendations weren’t followed.”

The changes to the deputies’ areas of responsibility were made “hectically and without any practical discussion,” according to Sologub. “I had no possibility to impact the decision. This isn’t the way governance at a proper central bank should work.”

The IMF and other Western backers have voiced concern and are monitoring developments. The Washington-based lender is in the middle of a remote review of its loan program with Ukraine before it will consider approving the next $700 million disbursement. Besides the central bank, remaining issues include getting anti-corruption efforts back on track.

Despite averting economic catastrophe during the pandemic, Sologub says Ukraine -- one of Europe’s poorest countries -- should set its sights higher than just survival. And to catch up with richer nations, it will need a “strong, independent and professional central bank.”