An Interview With Sergiy Arbuzov, the Governor of the National Bank of Ukraine

As Ukraine and Poland co-host EURO-2012 soccer (football) finals starting this week, we thought that it would be a good idea to spotlight these countries from the economic angle and track their development pre, during and post the EURO 2012 tournament.  Both these countries represent very interesting examples of emerging markets, each with a full set of issues, solutions, problems and potential business opportunities.  To help us achieve our goal we set up special pages on this blog called “Emerging Markets Spotlight  – Ukraine and Poland respectively.    On these pages we will profile each country and will attempt to highlight more interesting and pressing issues, both domestic and external.  We will also interview with various parties involved in economic landscapes of these countries.  Our first interview is with the Mr. Sergiy Arbuzov, The Governor of the National Bank of Ukraine.  Full text is found below

An Interview with 

the Governor of the National Bank of Ukraine – Sergiy Arbuzov.

National Bank of Ukraine

National Bank of Ukraine

June 8, 2012

Today, as the world economy overcomes financial turbulence and experiences probably the most difficult period  since times of Great Depression, we interview The Governor of the National Bank of Ukraine Sergiy Arbuzov to find out how Ukraine, and particularly its financial community, is dealing with the these complex economic times.  Governor Arbuzov believes, that today’s challenges and problems require non-standard approaches from all participants of the financial market. With this objective NBU recently suggested considering a possibility of inclusion of platinum in the international reserves of the central banks.

As of today, out of all precious  metals only monetary gold is included in reserves of the central banks; though values of other rare metals, such as silver, platinum, and palladium, etc., continue to grow. Leading economic experts consider these metals for possible inclusion as additional currency reserve metals. If the world financial community will support Governor Arbuzov’s initiative, one more useful financial tool for management of tumultuous processes in the world economic markets will be created.

Recently, the Publisher of Fluent In Foreign blog, together with the Governor of National Bank of Ukraine discussed the work of the National Bank of Ukraine over the last year and explored interest of investors in new tools of NBU, which are currently under development and review.  Exclusive excerpts of this interview follow below:

  • Governor, how do you assess the development of the economic situation in Ukraine already this year? What key factors determine it?

Ukraine has achieved significant progress in the implementation of a comprehensive strategy. Now we follow the large-scale transformation of all aspects of the economy and the social sphere. We introduce pension, customs, and tax reforms that are materializing into real results. Deregulation of the economy is taking place. The reform of the judicial system and criminal justice as well, is under the process of implementation. The National Anti-Corruption Strategy for the years 2011-2015 is approved. This year new laws to fight corruption started to operate. New Labor Code. – is under the process of devevelopment.

We have some success in the macroeconomic sphere. According to our estimates, in 2012 Ukraine’s economy will grow by 2-3%. As a result of stabilization in the sphere of public finance deficit of the State budget will amount to 1.8% of GDP. The level of inflation for the second year in a row beats minimum historical records, now it is 0, 6% in annual terms. Our inflation forecast for this year is about 5%. For Ukraine, it is an extremely good result. The National Bank of Ukraine will continue to make all the efforts to keep inflation stable at a low-level.

Development of economic situation in Ukraine is to a large extent dependent on external factors.  Together with the Government, we are following the developments in the global financial markets, and we have a comprehensive plan of action in case the negative external effects on the economy of Ukraine would happen.

  • How NBU would change its policy and support banks in case of a deterioration of the situation?

We will continue to strengthen the role of the hryvnia in economic turnover and dedollarize economic relations. We have already tightened supervision of the banking system, launched the international mechanisms for the protection of the reserves, currency exchange rate and currency market as a whole from the pressure of demand on the cash market.

Undoubtedly, the NBU must have additional tools to support the banking sector in the event of a worsening of the situation. We are aware of our responsibility and are developing these tools. We working together with the banking community and consulting with IMF concerning our activities. In addition to have a good feel of the market, we always communicate with bankers, domestic and foreign investors, as well as representatives of hedge funds.  We intend to continue this dialogue with the purpose of creation of  favorable conditions for investing in Ukraine.

  • What were main obstacles to the growth of investment in Ukraine last year? What did the Government and NBU do to make investors feel more comfortable?

I regularly meet with foreign and domestic investors and often hear complaints about imperfections of the legislative field, the bad reputation of the courts, overregulation and risks of working on the Ukrainian investment market.  Last year, the National Bank was focused on steps aimed at improving at least part of these issues.

Last year, with the Bank’s initiative, Rada adopted four important laws: on the protection of the rights of the lender; about improving the transparency of banks; about supervision on a consolidated basis; about the peculiarities of corporate governance in banks (adopted in the first reading). Moreover, the banking community and the international financial organizations were closely involved in development of each bill. This year Government adopted a law on the system of supporting deposits of individual persons. We handed over the withdrawal of problematic assets of banks from the market to the Fund supporting deposits of individual persons.

Also we simplified mechanism of repatriation of dividends to foreign investors: reduced package of documents, cancelled the confirmation of mandatory payment of all taxes from the income. In addition, we improved procedure of return on investment for operations of purchase-sale of securities on the stock exchanges. In the course of liberalization of the foreign exchange market, we have also allowed banks to conclude the currency swaps that would allow banks to attract cheap funds in the future, and issue other financial instruments both on domestic and international markets.

  • Which priorities and tasks of the NBU for this year? Is there among them to improve the investment climate? What specifically you can offer investors?

As contribution to the improvement of the investment climate, The National Bank carries out  the support of price stability in the country, promoting the stability of the banking system and support the economic policy of the Government. Of course, we will pay attention to other activities, for example, improving the functioning of the stock market, which should become the main source of long-term capital for domestic investment.

The market of investment gold coins is functioning already (as well as silver and platinum). By the way, there is a high demand for this tool. We are discussing the question of Ukraine’s Development Fund creation.  We plan an expansion of lending instruments for banks. In particular, we want to allow lending to enterprises that own a license for mining, using the license itself as collateral.

In the final stages is the development of the program, which deals with improvement of the current  payment systems in Ukraine. We want to solve the problem comprehensively. In particular, we aim to seriously increase the share of cashless payments, reduce the underground component of this market and develop a system of electronic money.

A lot already has been done in the arena of Land Bank creation. After all, our calculations show that the launch of the land reform will increase the volume of investments into the economy of Ukraine and will give an additional impetus to the development of the financial market. We switched to payments for external contracts with Russia in the national currency. Also in the final stages are talks with China. The projects on improvement of the financial literacy of the population have been launched. The Bank started broadcasting channel-Bank TV.

  • Is there intent by the National Bank of Ukraine to initiate  the issue of  inclusion of new financial assets as part of  global international reserves? What should be done to achieve this?

Searching of new approaches to the recent calamities and challenges that the world economy faced during recent years, is still very important.  In this regard, we pay close attention to the leading economies, as well as to the International Monetary Fund for development of innovations aimed at softening the world’s financial crisis and accelerating the recovery of sustainable growth of the world economy.

However, many of the initiatives undertaken, have a limited impact on the  emerging market countries (particularly Ukraine), mostly because the leading economies are themselves the beneficiaries of the innovative measures.   In this context, the National Bank of Ukraine appealed to the leadership of the International Monetary Fund with the initiative to consider the feasibility of expanding the spectrum of  international monetary gold reserves, and inclusion as part of them other  precious metals such as platinum.

On the one hand, the adoption of such a step would stimulate the general tendency of price increases for these metals on world markets. On the other, in contrast to countries, whose currency is freely convertible on internal markets,  economies with emerging markets do not have such advantages. Thus monetary easing  for them turns out to be much more difficult, because there will always remain risks of  impairment of their national currencies.  A reduction  of such risks and currency options for various countries could result from expansion of the list of monetary metals that are taken into account by the international community in the reserves of the central banks.

  • How will IMF’s support for your initiative on this issue affect the level of international reserves of Ukraine?

Of course the enrolment of new financial assets in international reserves in Ukraine will increase their volume. Now, when there has been some turbulence on world currency markets, it is necessary to maximally improve the potential stabilization of our country, increasing its international reserves is one such instrument. That is why the actions of the National Bank of Ukraine are primarily aimed at finding new sources of their replenishment. At the same time, as already stated, the question must be treated in a wider context. It is about finding the extra liquid instruments, which have a global recognition and can be used in international currency dealings. Under this perspective, we believe it is necessary to consider the interests of not one country, but of the entire international financial community.

  • Why the NBU is actively initiating increase of gold mining, and what will it offer to investors this year?

Ukraine has significant deposits of gold – more than 3 thousands tons. Given the significant growth of gold prices in the world, we started work on expanding gold production with the purpose of replenishment of the international reserves of the National Bank. To do this, the decision of the Cabinet of Ministers on gold-mining enterprise “Pivnichgeologia”  has been transferred to the balance sheet of the National Bank.  At this time, on the initiative of the National Bank, The State Service of Mining Exploration and Geology of Ukraine decided to issue to this enterprise special permits for subsurface  exploration of five new gold mines  Again I want to underline that following extraction of these deposits, gold in the future will be melted, processed and added to the international reserves of Ukraine.

  • What advice would you give to our readers on investing in Ukraine?

Investing in Ukraine is promising. The country was on the path of reforms and transformations. We do everything to ensure that investors receive high dividends in the future.

  • Thank You, Governor.
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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

2 Responses to An Interview With Sergiy Arbuzov, the Governor of the National Bank of Ukraine

  1. Pingback: Emerging & Frontier Markets Headlines 2012.07.05 | Diverging Markets

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