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IMF Warns Ukraine To Maintain Central Bank Independence

Ukraine President nominated Kyrylo Sheychenko, who is head of the state-run Ukrgasbank, as new governor of the central bank two weeks after his predecessor left the central bank over systematic political pressure. Parliament still must approve Shevchenko’s nomination.

Yakiv Smoliy’s resignation concerned the International Monetary Fund, whose $5-billion stand-by assistance for Ukraine is contingent on the central bank’s independence.

The IMF earlier this week appealed to Ukraine’s President Volodymyr Zelenskiy to maintain the central bank’s independence, pointing to “concerns about the pressures being put on the National Bank of Ukraine (NBU).”

Zelenskiy told IMF Managing Director Kristalina Georgieva he would nominate an “independent technocrat” and the central bank would remain independent.

Shevchenko, 47, has been suspected by local press of being the next governor since February, and criticized monetary policy under Smoliy as hawkish, while the celebrating the government’s efforts to make loans less expensive for businesses.

Zelenskiy celebrated Ukrgasbank for providing cheaper loans to small businesses through a government program. Lawmakers in Zelenskiy’s party, such as head of the parliamentary finance committee Danylo Hetmantsev, praise Shevchenko’s professionalism. Foreign experts, however, don’t like him.

“Few people know much about him – not proven as a reformer. No one really knows where he stands on key issues,” Timothy Ash at Blue Bay Asset Management said in the first comments after the announcement.

The IMF’s managing director, Kristalina Georgieva, referred to an “open discussion” she had with Zelenskiy on “concerns about the pressures being put on the National Bank of Ukraine (NBU).”

She told Zelenskiy that Ukraine must keep central bank’s independence under the terms of a $5 billion IMF program agreed to earlier this year.

Zelenskiy had called for the central bank to cut interest rates, but assured Georgieva that he would nominate an independent technocrat as new central bank chief.

National Bank of Ukraine Governor Yakiv Smoliy quit on July 1 after Ukraine signed the IMF program. He argued the president’s office pressured him to cut interest rates prematurely leading to a hryvnia devaluation.

“It is in the interest of Ukraine to preserve the independence of NBU and it is also a requirement under the current IMF-supported program,” Georgieva said. “I urged President Zelenskiy to stay the course of sound monetary and financial policies – those are key to stronger investment and inclusive growth.”

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