Russia's chief banker Viktor Gerashchenko suggests the law On the National
Bank of Ukraine be overruled by the Constitutional Court
By Iryna KLYMENKO, The Day
VIKTOR GERASHCHENKO
Ukrainian financiers overlook for some reason the epic of legitimizing
the status of the National Bank (NBU). No foreign exchange panic, no interest
rate rise, in a word, complete indifference to the vital question of who
has been controlling their money since yesterday. Can they have been mesmerized
by a charismatic chief banker? They should not have been. The new law says
the chief banker is not in fact such. The chief banker has not yet been
selected by the still unappointed seven party and seven presidential representatives.
It is not ruled out that the current chief banker will continue in his
current position. But the epic is again in full swing...
On May 20, Parliament passed the law On the National Bank of Ukraine
in the final wording, and two weeks later the National Bank submitted to
the Presidential Administration its comments which comprised a request
to veto the articles regulating NBU management and the procedure of writing
fines off for commercial banks. It was not clear until the very last moment,
June 11, whose recommendations the President will heed.
Those in the know say that several groups pressed for the decision to
veto or not to veto. Opposed to the veto were, first, those who feared
freezing of the NBU bills On Commercial Banks and On the Banking System.
Secondly, the official adoption of the law On the NBU was directly associated
with the reception of a World Bank loan by the government. Thirdly, the
veto was naturally opposed by the banking lobby, which favored diluting
the NBU's powers and the norms of the law that passed. The resistance group
proved to be small, the NBU itself and some of those who sympathized with
its style of money market regulation, and hence less influential. Hence
it was small wonder that on the eve of the prescribed period the President
took a very original decision: to sign the law but return to Parliament
the articles dangerous to money market stability in the shape of a bill
On Amendments to the Law on the National Bank.
Let me recall why the old dispute flared up again. In the approved wording
of the law, the NBU Supervisory Board, as the bank's highest ruling body,
was vested with very extensive powers: working out the basic monetary policy,
introducing proposals for changing it, approving NBU estimated expenses,
approving foreign economic transactions worth over UAH 10 million, approving
appointments and dismissals of Bank Board members, and vetoing NBU Board
of Governors decisions. Moreover, the same law in fact absolved Supervisory
Board members of any responsibility for the decisions they make. Conversely,
the NBU Board of Governors got a host of responsibilities.
Unbiased observers made an disquieting diagnosis of the law: instead
of regulating the rights and duties of the central bank executives, Verkhovna
Rada has planted a time bomb under the whole financial market. For we all
know only too well what kind of decisions are made under the format of
collective irresponsibility. Of course, one can disagree: whatever the
case, the law stipulates that the person responsible be chairman of the
NBU Board of Governors (i.e., Viktor Yushchenko). However, the experts
say, such executive responsibility, coupled with "non-interference" in
the essence of what is to be executed, is an aberration bordering on catastrophe
for the monetary sphere. In other words, if a certain decision does not
lead by definition to the desired result, it will never be achieved, whether
somebody is responsible for it or not.
Thus on June 15, i.e., a few days after the President approved the law,
Parliament received a bill which, in particular, provided for depriving
the NBU Supervisory Board of the status of a highest ruling body and of
some other powers, and subordinating this Board to the NBU Chairman. In
plain words, the lawmakers were advised to equalize in rights the NBU Supervisory
Board and Board of Governors by stating in the law that both structures
are the bank's ruling bodies. It was also proposed to withdraw from the
law the provision under which the Supervisory Board has the exclusive right
to veto Board of Governors' decisions, approve NBU participation in other
organizations, approve foreign economic transactions worth over UAH 10
million, give consent to the appointment and dismissal of directors, approve
NBU estimated expenses, and ban undisputed write-offs of bank account debentures.
In addition, the bill provides for cancellation of the post of Supervisory
Board Chairman elected by its members and for putting the board under the
NBU Chairman's jurisdiction. The President's request to Verkhovna Rada
as far as "maximum" representation of NBU interests is concerned, must
have required certain compromises. Otherwise it is difficult to explain
why the new bill features a provision (always opposed by Mr. Yushchenko
in the past) that empowers the bank to buy treasury bills on the primary
market (i.e., it preserves direct credit to the budget).
It is not yet known how members of the relevant Verkhovna Rada standing
committee will react to the new presidential initiative. No one knows if
they will be wise enough not to turn the body, which controls Ukraine's
monetary system, into a mini-Verkhovna Rada, with all that this implies.
We hope the People's Deputies will have no problems with wisdom, with due
account of a forecast by Deputy Speaker Adam Martyniuk that Parliament
"will, in all probability, not support the President's proposal to make
amendments to the law On the National Bank of Ukraine, which deny the NBU
Supervisory Board the status of its highest ruling body."
VIEWPOINT
In last September, Viktor Gerashchenko took for the second time the
chair of post-Soviet Russia's chief banker. Among the principal reasons
for this appointment is his tremendous experience of working in the USSR
banking system, including management of a foreign bank. We think it interesting
for the reader to know the opinion of a Soviet-school professional about
the new law On the National Bank of Ukraine supported by the Left majority
of our lawmakers and envisioning the Supervisory Board as the bank's highest
ruling body. The Chairman of the Bank of Russia comments:
"I would say that no such organization of a central bank exists in any
other country, neither in those that have passed the initial path of market-economy
development nor in so-called emerging-market countries. Rejection of such
principles is partially based on world experience gained after studying
the regular development of banking systems and the work of central banks.
Thus in the system of any central bank, responsibility for the stability
of the national currency, prices, etc., still lies with the people who
actually work in the bank, and not members of some non-governmental or
supervisory board. As I understand it, in making decisions for the bank
members of the Supervisory Board bears no responsibility. I think this
only makes things worse. And, in my opinion, ongoing processes in Europe
(and we are not indifferent to them), including those aimed at creating
a common economic space, a single currency, and a single European bank,
show that the importance of people working on the bank's board of governors
is higher than that of any other coordinating or any kind of scientific
boards.
"There was an experience like this with the USSR State Bank in the 1930s:
a similar board, consisting of many ministers, was set up after the credit
reform of 1929-1930, consisting of 30 persons. But it became clear very
soon, even under that, I would say, severe system of state planning and
Party responsibility, that this body simply could not work. Thus here I
think we are sailing into the unknown. In my opinion, as I understand the
materials I saw and read, and judging by conversations with your bank's
representatives, this decision is in general even unconstitutional.
"Unfortunately, such attempts are also occasionally taken in our Duma
and the Federation Council, whenever some sectors, regions and cities want
to solve certain current problems by having such an organization or such
a system of central bank management when you can keep the dog on a tight
leash, i.e., make somebody do what he is told today, taking care of a certain
concrete case and specific region, without caring about a stable national
currency in the interests of all members of society."
"You said that world practice knows no precedents of forming supervisory
boards of the type formed for the National Bank of Ukraine. But this is
rather an elusive answer. Could you tell me what you would do if you were
Mr. Yushchenko or how would you react if the Russian Central Bank were
supplemented by a board, with half its membership appointed by the Duma
and the other half by the President, which would impose on you a monetary
policy and approve all your deals worth over $2 million? How would you
work under such conditions?"
"Well, we've got a board... What's its name? I forgot. This getting
a little off the track. It is a generally useful body for exchanging opinions,
listening to unprejudiced criticism, and perhaps to making certain changes
in the decisions of the Central Bank's Board of Governors. But this should
be an oversight, consultative board.
"As to personally Viktor Yushchenko or Viktor Gerashchenko, you see,
we are in different situations. For I am in Moscow and of pension age,
but he is not."
"Since the law On the National Bank has already been passed, and
the prospect of making amendments to it can only be considered hypothetically,
we have to forecast the situation on the money market, proceeding from
this version of the law."
"But you, as citizens of Ukraine, can turn to the Constitutional Court
to recognize this law as unconstitutional."
"Under the law passed, the NBU finds itself in the very heart of
political conflicts. What do you think should be the role of the central
bank chairman under such conditions? Can one hope that structural changes
in the bank management will not affect the bank's ability to function like
clockwork?"
"In general, a clock is a precise instrument, while the activities of
a central bank in any country is an even more intricate mechanism. I remember
very well the words of Alan Greenspan, head of the US Federal Reserve System.
I asked him: 'But why is one of Federal Reserve's tasks to provide employment
to the population? You are not the Department of Labor!' He answered: 'Viktor,
we are not part of the government, but we are in the Administration. And
on-going economic processes - inflation, the related unemployment, and
changes in the cost of living - are, in the long run, the objectives of
the monetary policy pursued by the central bank.' So, on the one hand,
a bank should not be politicized. But, as a rule, each President sends
only his favorite economists to the Federal Reserve, while he is in office
for four or eight years. Naturally, their policies become harder or softer
depending on whether presidential elections are coming on. But the main
thing is what kind of economic situation exists in he country and whether
or not the national currency is stable. It is important for them as the
central bank that a satisfied voter should go to the polls."
Moscow-Kyiv
