"CYNICAL" PM BLASTS "INFLEXIBLE" UKRAINE BANK CHIEF

C O N F I D E N T I A L KYIV 002487

SIPDIS

DEPT FOR EUR, EUR/UMB, EEB/OMA
TREASURY PASS TO TTORGERSON

E.O. 12958: DECL: 12/19/2018
TAGS: EFIN EREL ETRD PGOV PREL XH UP
SUBJECT: "CYNICAL" PM BLASTS "INFLEXIBLE" UKRAINE BANK CHIEF

REF: A. KYIV 2464

B. KYIV 2412

Classified By: ECONOMIC COUNSELOR EDWARD KASKA, REASONS 1.4(B) AND (D)


1. (C) Summary. Ukraine's Prime Minister Yulia Tymoshenko
lashed out at the National Bank of Ukraine (NBU) on December
18, calling for the resignation of NBU Governor Volodymyr
Stelmakh and lobbing stinging criticisms at NBU exchange rate
policy. Although Tymoshenko has denounced the NBU chief on
many previous occasions, she took the opportunity of a major
fluctuation in the hryvnia to question the Bank's capacity to
handle Ukraine's spiraling economic crisis. Separately, a
senior NBU official characterized Stelmakh as "old school,
non-transparent, and inflexible" and speculated on his
possible replacement. In its defense, the NBU called such
criticisms "cynical" and politically motivated. End summary.


2. (SBU) In a major news conference widely reported among
Ukrainian media outlets, PM Tymoshenko demanded that
President Viktor Yushchenko remove NBU Governor Stelmakh from
office. She portrayed the NBU's actions on the foreign
currency market as manipulative and destabilizing for the
hryvnia and the country's banking system. Tymoshenko called
on Ukraine's prosecutor general to conduct an investigation
of the NBU's foreign exchange interventions, which have been
conducted below market rates and facilitated shady insider
currency trading (Ref A).


3. (C) Stelmakh's fall has been widely rumored in Ukraine's
financial circles. One of Stelmakh's key deputies told the
Ambassador on December 18 that the NBU Governor was "old
school, non-transparent, and inflexible." Oleksiy Berezhniy,
a former senior GOU economic advisor and now head of
department at the NBU, speculated that four possible
replacements for Stelmakh were being considered. He listed
former Rada speaker Arseniy Yatseniuk, current NBU council
chief Petro Poroshenko, former NBU Governor Sergiy Tihipko,
and current first deputy head of the Presidential Secretariat
Oleksander Shlapak as the key front runners. As a confidant
of President Yushchenko, Shalpak may be too closely
associated with presidential chief of staff Viktor Baloha to
be confirmed, according to Berezhniy. These insider NBU
speculations are consistent with those made by Minister of
Finance Viktor Pynzenyk, who had insinuated to the Ambassador
on December 4 that a possible replacement of Stelmakh was
imminent (Ref B).


4. (SBU) The NBU responded publicly to Tymoshenko's comments
on December 19, expressing surprise at the "cynical" stance
taken by the PM and pointing out that the PM's Cabinet of
Ministers had pursued actions "dangerous" to Ukraine's
economy. Further shifting blame for Ukraine's worsening
economic crisis, the NBU stated that the "government's
unprofessional activity in economic policy management may
lead to the country's internal default as early as this
December."


5. (C) Comment. Although Tymoshenko has taken a hard line
on Stelmakh in the past, her comments on December 18 have
particular resonance among Ukraine's wary and weary populace.
Stelmakh is now a favorite whipping boy of the press, and he
may be holding onto his position solely due to the political
backing of President Yushchenko and the soft stance taken by
the IMF (Ref A). The rhetorical wars between pro and
anti-NBU forces reveal that political rivalries continue to
impede real steps to combat the country's growing economic
crisis. The negative comments of a senior NBU official,
combined with general public enmity stirred up by a failing
economy, reveal that Stelmakh's days could be indeed
numbered. End comment.
TAYLOR