Ukrainian Chief Banker in Legal Limbo

The Ukrainian parliament has exacerbated both the political and economic crises in Ukraine by voting to dismiss National Bank (NBU) head Volodymyr Stelmakh. Consequently, it is not clear who is running the central bank in a country that has been among the hardest hit by the global financial crisis. The move was orchestrated by Prime Minister Yulia Tymoshenko, who has been demanding Stelmakh’s removal for months. President Viktor Yushchenko, her main rival, has refused to recognize Stelmakh’s dismissal, and the law is apparently on his side.

Tymoshenko holds Stelmakh responsible for the devaluation of the national currency, the hryvnya, by some 60 percent against the dollar since summer 2008. She also believes that the NBU decision to issue loans worth billions of dollars to several ailing banks from November through January was illegal. Tymoshenko is especially unhappy about the refinancing of Ukraine’s seventh-largest bank, Nadra, which she accused of involvement in illegal currency speculations, an allegation denied by the bank (see EDM, December 17; UNIAN, January 24).

Yushchenko’s team views Tymoshenko’s motives differently. Oleksandr Shlapak, Yushchenko’s chief economic advisor, has claimed that Tymoshenko wants to eliminate Stelmakh because he opposes her plan to sell government bonds to the NBU in order to cover a huge budget deficit in 2009. Shlapak warned that if the NBU started printing money in order to eliminate the deficit, Ukraine’s economy would be thrown back into the 1990s (Kommersant Ukraine, January 27). In the 1990s Ukraine’s GDP shrank dramatically, and inflation reached five-digit figures by 1994.

Ukraine’s parliament, which has been dominated by a pro-Tymoshenko coalition since late last year, voted no-confidence in Stelmakh twice, in December and January. That did not impress Yushchenko, who flatly refused to dismiss Stelmakh, his ally since the 1990s when Yushchenko himself chaired the NBU and Stelmakh was his deputy. According to the Ukrainian constitution, it is the president who has the authority to dismiss the NBU head, and parliament is only able to reject or approve his decision.

Since parliament cannot directly dismiss Stelmakh, it opted for a bizarre alternative. On January 26 a parliament majority voted to invalidate parliament’s approval of Stelmakh’s appointment as NBU head in December 2004. Tymoshenko’s team tried at the same time to replace Stelmakh with Serhy Tyhypko, who led the NBU in 2004. The Communists and defectors from Yushchenko’s camp who voted to oust Stelmakh refused, however, to back Tymoshenko’s choice for his replacement (Ekonomicheskie Izvestia, January 27).

This probably means that the NBU will be formally steered by Stelmakh’s first deputy, Anatoly Shapovalov, as long as Stelmakh’s status is unclear; but Tymoshenko also wants Shapovalov out. Justice Minister Mykola Onishchuk, who is loyal to Yushchenko, said that parliament’s vote on Stelmakh had no legal basis (UNIAN, January 27). Yushchenko’s legal adviser Ihor Pukshyn said that Yushchenko would appeal parliament’s decision to the Constitutional Court (Ukrainska Pravda, January 26).

Arseny Yatsenyuk, a former deputy of Tyhypko and parliament speaker in 2007 and 2008, suggested that if one accepts parliament’s logic on Stelmakh’s dismissal, one should also accept the possibility that parliament could replace Tymoshenko with one of her predecessors in the post of prime minister (UNIAN, January 26). In a television interview, Tymoshenko conceded that parliament had no legal powers to dismiss Stelmakh (ICTV, January 26).

The uncertainty about the NBU leadership may make matters worse for Ukraine’s ailing banking sector. Prominvestbank, the country’s fifth largest bank and the first to send out bad signals last fall, has apparently been rescued as the NBU managed to find a buyer for it in Moscow—Vnesheconombank, which is chaired by none other than Russian Prime Minister Vladimir Putin (Ekonomicheskie Izvestia, January 16). RODOVID, another one of Ukraine’s top 20 banks seriously weakened by the financial crisis, is about to be sold to ISTIL, a company belonging to a British national, Mohammad Zahoor (Kommersant Ukraine, January 12). Several other large banks are on the brink of disaster.

Tycoon Dmytro Firtash has reportedly lost interest in the Nadra Bank after RosUkrEnergo, his joint venture with Russia’s Gazprom, was eliminated from the gas trade between Ukraine and Russia under the recent agreements between Tymoshenko and Putin. Firtash declared his interest in Nadra last November (Segodnya, January 27). Nadra is seriously short of cash, and the Fitch international rating agency recently gave it the lowest rating among post-Soviet banks (Kommersant Ukraine, January 21). Shapovalov, speaking in parliament, accused the Tymoshenko cabinet of sinking Nadra, because at the cabinet’s request a court in Kyiv forbade the NBU to continue refinancing the bank (Ukrainska Pravda, January 26). Tymoshenko insists that Nadra is being refinanced illegally on Yushchenko’s orders (Ukrainska Pravda, January 22).

The NBU has appointed a temporary administrator for another large cash-strapped bank, Ukrprombank (RBK-Ukraine, January 21). Ukraine’s largest private bank, PrivatBank, denied rumors that it was going to buy Ukrprombank (www.finblog.com.ua, January 12).