Ukrainian Leader Appeals to Investors as Central Bank Boss Quits

Ukrainian President Volodymyr Zelenskiy sought to reassure markets after the head of the central bank unexpectedly stepped down citing sustained political pressure against him and his colleagues.

The shock departure comes not only as the eastern European country -- like the rest of the world -- battles the Covid-19 pandemic. The government late Wednesday also priced a $1.75 billion sale of Eurobonds and recently agreed on a $5 billion loan program with the International Monetary Fund after months of negotiations.

The hryvnia plunged 1.3% on Thursday to its lowest level against the dollar since April.

“Ensuring the central bank’s independence remains our priority,” Zelenskiy’s office said after Governor Yakiv Smoliy’s shock resignation.

The words will be scant comfort to Smoliy, who’s complained for months about pressure -- including from Zelenskiy and his lawmakers -- to lower interest rates and aid exporters by facilitating a weaker national currency.

Some members of his ruling party have even sided with billionaire Igor Kolomoisky’s efforts to overturn the central bank-led nationalization of the country’s biggest lender, Privatbank, four years ago.

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“For a long time, systematic political pressure was applied to the central bank,” said Smoliy, who was appointed in 2018 and is widely respected by foreign investors. “This makes it impossible for me to efficiently fulfill my duty as governor and to cooperate with other government bodies.”

His exit still needs to be accepted by Zelenskiy, who must also pick a successor, and approved by parliament. Yulia Mendel, the president’s spokeswoman, couldn’t immediately be reached for comment outside of working hours. The central bank said the rest of its board would remain in place.

Smoliy, who joined the bank in 2014 after Ukraine toppled its Kremlin-backed leader, is credited for helping tame inflation, keep the hryvnia stable through the pandemic and negotiate the recent IMF deal. He oversaw a reduction in benchmark borrowing costs to a post-communist low last month.

‘Enormous Loss’

“Smoliy did an outstanding job,” Tim Ash, a strategist at BlueBay Asset Management LLP in London, said in an emailed comment. “This is an enormous loss.”

Central banks around the world have faced increasing political pressure in recent years to adopt policies that are more friendly to economic growth. Before the pandemic, U.S. President Donald Trump regularly chided Federal Reserve Chairman Jerome Powell over monetary policy. Turkish President Recep Tayyip Erdogan ousted his central bank chief in 2019 for not lowering interest rates aggressively enough.

In Ukraine, Smoliy isn’t the first governor to face pressure. Protesters hounded his predecessor, Valeriya Gontareva, who on one occasion saw a coffin containing a cutout of her wearing a prison inmate’s uniform delivered to the central bank’s headquarters. She also alleges Kolomoisky burned down her family home in Kyiv, which he denies.

The bank accused the tycoon in November of orchestrating an intimidation campaign through public demonstrations and negative media coverage in a bid to win back control of Privatbank.

“I want my resignation to be a warning against further attempts to undermine institutional grounds of central bank in Ukraine,” Smoliy said.

©2020 Bloomberg L.P.

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