Reconstruction Then And Now: Q&A With Former Ukraine National Bank Governor Valeria Gontareva

Valeria Gontareva, governor of the National Bank of Ukraine 2014–2017, knows a few things about rebuilding in the wake of conflict. She talks about how Ukraine’s economy can be restored.

Global Finance: What were the challenges you faced when you were appointed governor of the National Bank of Ukraine and how does it compare to the situation now?

Valeriya Gontareva: Ukraine lost 20% of our GDP because of the annexation of the Crimea and the war in the Donbas. Our balance of payments had collapsed, the banking sector was in ruins and there were unsustainable imbalances in all sectors of the economy. We were going through the so-called perfect storm of a macroeconomic, currency and banking crisis when I was nominated governor of the central bank.

This time, we lost 50% of our GDP, tax revenues are down 70%, exports are down 60% and we’ve had an estimated total economic loss of $564 billion so far due to the war. The main threat now is that nine out of 10 Ukrainians could be pushed into poverty.

GF: What reforms did you make as governor of the central bank and how has the banking sector held up during full-fledged war?

Gontareva: In 2014, we had zero chance of survival without the help of the IMF, Europe and America. All the reforms we implemented were supported by the international community. We shifted to a flexible exchange rate, adopted a new monetary policy of inflation targeting, cleaned up the banking system and rebuilt internal processes. When I came to the central bank, there were 180 banks and when I left there were 70 after we closed zombie banks. We built a powerful and independent central bank. I’m very proud of what we accomplished, and the banking system has now demonstrated resilience in wartime.

GF: What does Ukraine need now from the international community?

Gontareva: Ukraine needs three kinds of support: humanitarian and military aid; help financing a monthly budget deficit of $5 billion; and help for the eventual reconstruction plan. The response on the first front has been fantastic. When we win the war—and Ukraine will win the war—we will need more than just financing to rebuild Ukraine. We will need technical assistance and other kinds of support. Ukraine still does not have a good judicial system and anti-corruption agencies so it will be important to have a platform with all stakeholders involved to keep proper control of expenses. We started banking reform but what Ukraine needs most is judicial and court reform. Without it, reforms will be reversible. The country needs a lot of help and money, but it also needs conditions attached with strong monitoring. Without it, corruption will prevail again.

GF: How will Ukraine’s reconstruction be financed?

Gontareva: We can’t fund it through deficit spending or through European and American taxpayers. Russia should pay for it.  It’s difficult to access the frozen assets of [individual] Russian oligarchs, but we can easily access frozen assets of the Russian central bank with legislation. It’s not right that US and European taxpayers pay for the reconstruction of Ukraine.

GF: What will be the role of the central bank in rebuilding the private sector and revitalizing Ukraine post-war?

Gontareva: It’s a very difficult question and we will need help and guidance to involve all the people. When you lose your businesses and you lose your homes, it’s difficult to start from scratch again. We have a chance to create a new modern country and to build good infrastructure. We will need human capital to rebuild, and I think most Ukrainians who have left the country will return if we show them good opportunities for business and development. We need to stop Putin and his regime completely. All civilized humanity is fighting against one dictator and though Ukraine is paying a high price, we will win together.