Volodymyr FIALKOVSKY: "We could damage the prestige not only of the National Bank but of the whole country"

V. F.: Not only that. Following its own logic, NBU had to cancel all commercial banks' licenses. There is no ECU, so not a single bank has an authorized capital stock of one million ECU. NBU not only interprets the law, but also acts in ways very dangerous to the state.

The Day: Aren't you being a bit too formalistic in your approach?

V. F.: How can one be formalistic if the country's most competent financial organization makes an official statement like that (and Mr. Soltys said they were prepared to issue a written statement)? They are setting a precedent. For example, the tax on alcoholic drinks and cigarettes is over 90%. Just imagine what will happen if they stopped paying this tax. By the way, the meeting was attended by Oleksiy Shytria, Deputy Head of the State Tax Administration. He said that, hearing such statements from the National Bank, one can believe that anything is possible in this country.

The Day: Yet this is a potential threat, isn't it? Are there any new facts in the commission files?

V. F.: Yes, quite a few. They will all be cited in Viktor Suslov's report. At the moment I can only refer to some of them. For instance, huge stabilizing loans to Inko Bank. On what grounds? Where is all that money? And there was so much I won't even try to specify, something like a trillion karbovantsi (the previous Ukrainian currency). From what I know there was no love lost between the then Inko management and NBU. They were very displeased by its policy and the manner in which NBU ordered them to use those loans.

The Commission also came across evidence pointing to an NBU mixed interest loan ($100 million) to the Russian Gazprom Bank, using foreign exchange reserves. It was never repaid and no one knows if it ever will be, especially considering that securities (presumably Gazprom obligations) were used as collateral and that their market value is about 15-20% of the loan. Why should one bother repaying it then?

One other thing is totally flabbergasting: two tranches of the DM 175 million purpose loan to the Ukrayina Bank in 1996 for compensation payments to Ostarbeiters (persons taken by the Germans for slave labor in World War II). If a commercial bank failed to properly manage a loan given it by the German government, what is to be done with the Ukrainian state, National Bank or Ukrayina Bank?

The Day: There seem to have been appropriate government decisions in that case.

V. F.: Great. Then the question is whether the Ostarbeiters will receive that money from the National Bank? No, because this money was used to buy domestic government bonds, and the Ostarbeiters were paid out of bond yields, a very small percentage of the original amount. Besides, we have reason to suspect that the Ukrayina Bank never repaid the loan. We are still investigating the case. As I said, there is a great deal of work ahead.

However, we are fully informed in another case, namely how the NBU supports the hryvnia rate. They are using their favorite method, boosting what the hryvnia costs. How? Quite simply. Setting the NBU discount rate 3-5 times higher than the inflation rate, although everybody understands that these indices should differ only slightly in order to keep the economy ticking. Well, no one seems concerned about this here and the fact remains that the economy will not tolerate such an inflated foreign exchange value. Every textbook everywhere in the civilized world reads that high interest rates are extremely hazardous to the economy. But the National Bank of Ukraine thinks otherwise, although it can produce no practical argumentation. This tactic is allegedly meant to save the hryvnia, but Ukraine's economy testifies to the contrary.

The Day: Has anyone tried to compute the consequences if the NBU were to sharply  decrease the interest rate?

V. F.: This is something the National Bank should do itself in the first place. Now does it have this analysis? We do everything according to the principle of patching up holes when they appear. Now the time seems just right to lower the rate. We have received loans from international financial institutions, and the hryvnia has even shown a little growth. There is also growth in foreign exchange reserves, yet the interest rates remain sky-high. Result: the Ukrainian economy is deprived of all current assets. No one pays any money, instead the settlement of inter-enterprise arrears is practiced everywhere. All this is because we do not have a normal emission policy. If we did and if such emission were carried out according to schedule, we would have real stability - I mean the national currency fluctuations would be predictable.

The Day: Has the Commission come into possession of fresh evidence indicating how exactly the foreign exchange reserve shrank?

V. F.: Let's wait for the report. I have no right to disclose this information. All I can say is that we have a lot of information, names included, and this, in turn, raises a lot more questions and brings more facts to light. You can't even imagine how interesting this evidence is.

The Day: Many see intrigue, even in what they assume is Viktor Suslov's intention to get into the NBU Governor's seat, claiming this explains your Commission's exacting approach.

V. F.: You may have noticed that Mr. Suslov has not made a single statement on the matter. In fact, he wants his report to be publicized on the broadest scale, because he believes that not only the National Bank's, but also Ukraine's prestige is at stake. Just imagine: the Commission cites facts and figures, names names, and all it gets by way of response is something akin to hearsay.

Or consider this: the National Bank issued loans at interest rates lower than even its own discount rate. You will never find a precedent anywhere in the world. This alone caused the state to lose over Hr 90 million.

The Day: Did the NBU have any formal reasons for issuing such loans, say, Cabinet resolutions or something?

V. F.: Yes, but on very rare occasions. In most cases such loans were effected as decided by the NBU Board.

The Day: But maybe instructions were given by phone? You know that we still have this Soviet nomenklatura practice (called the "phone right")?

V. F.: Could be, but if so the NBU leadership should say so.

The Day: No such statements have been made, is that right?

V. F.: There have been several statements relating to certain issues, like, the Finance Ministry said we must do this and that. We accepted them as argumentation, but in most cases it was absent. More often than not we would hear such as we did it because we decided it was the right thing to do.

The Day: Did this have anything to do with subsidies to enterprises or monetary injections into certain industries?

V. F.: No, since 1995 the National Bank has been issuing soft credits either for the government or commercial banks. And quite often those loans were never repaid. NBU currently shows a debit balance, and this considering that the Cabinet still owes the Bank Hr 13 billion, and these are actually bad debts and must be referred to losses. This fact alone definitely refutes the suggestion that the NBU is doing fine.

The Day: Is there any practically opportunity to exact these debts from the government?

V. F.: You see, this is not the point. The strange thing is that, given a credit balance, the so-called revenues are used to build luxurious palaces. Take the baths and the head office of the National Bank. A palatial structure to all extents and purposes. Or the high-rise hotel in the center of Kyiv (without guests). Buying and repairing it required a lot of money. Where did it come from? And the Commission estimates the project cost Hr 7 million. All this superfluous luxury is quite confusing under the circumstances. Could they use this huge empty hotel, meant for top-level bureaucrats visiting the capital now and then, to accommodate children who were victims of the floods in Transcarpathia? No one has even considered the possibility.