Concerns are mounting this week over the identity of Ukraine’s next central bank head as the outgoing governor, Valeria Gontareva, quits her post later today (Thursday, May 11). The choice of her replacement is seen as central to the success of Ukraine’s reform efforts. “The National Bank of Ukraine (NBU) has been a reform leader among government institutions and key to securing macro stability,” said Tim Ash, an emerging markets strategist at Blue Bay Asset Management. “It is important that the institution doesn’t go backwards.”
A leading Western banker in Kiev agreed. “The central bank appointment is key because the job isn’t finished yet,” he said. “Gontareva did a lot but there’s still much more that needs to be done.”
Gontareva tendered her resignation on April 10 after three years in the post. Potential replacements include former deputy finance minister Igor Umansky, NBU council chairman Bohdan Danylyshyn, and Kostyantyn Vorushylin, the head of Ukraine’s deposit guarantee fund.
The preferred candidate of the foreign investor and donor community is local banker Volodymyr Lavrenchuk. A Kiev native, Lavrenchuk has been chairman of the board of Raiffeisen Bank Aval, Ukraine’s largest foreign-owned bank, since 2005.
“Lavrenchuk is apolitical and technocratic, which is important for assuring the NBU’s independence,” said Ash. “I wouldn’t want to see a political appointee or any of the names mentioned who either have served in the NBU in the past. It is crucial that the position of governor is not given away in some political patronage play.”
OBSTACLES REMAIN
The change at the central bank comes at a critical time for Ukraine. More than three years after the Maidan revolution, the economy has returned to growth and significant progress has been made on structural reform but endemic corruption remains a major bar to urgently needed investment.
“The more Ukraine makes progress into reforms, the more apparent it becomes that the number one obstacle remains law enforcement, rule of law, and property rights — the things that enable investors to sleep at night,” said Francis Malige, head of Eastern Europe and Caucasus at the EBRD.
Ash agreed, saying: “Corruption is still the number one issue for foreign and domestic investors – and there’s not much evidence of improvement. “Institutions are being [improved] but people need to be brought to account. There have been a number of high profile arrests but almost no one has been convicted. It’s not good enough.”
The post of central bank governor is not the only one investors are watching. Malige said the choice of new heads of Ukraine’s state fiscal service and state property fund would also be key.
“All three appointments can have a very significant impact on the shape of the Ukrainian economy going forward if the right person is chosen,” he said. “These appointments will be a very good test of the commitment of the leadership of the country to move forward with reform.”