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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Categorized | Banks

Ukraine central bank chief warns of double hit to economy

Posted on November 24, 2016

The central bank chief of war-torn Ukraine has warned that a surge in destructive populist politics and slowdown in reforms risks battering the economy in a double whammy scenario: undermining macroeconomic stability while simultaneously severing financial assistance from foreign backers.

The ominous words of Valeria Gontareva, made during a National Bank of Ukraine board meeting, come one week after the International Monetary Fund warned it would not disburse another tranche from a $17.5bn loan programme until more reforms are delivered.

Speaking on Thursday, Ms Gontareva said:

The risk is that structural reforms needed to secure economic stability in the country are being delivered slower and slower.

Ukraine faces the risk of losing support from international organisations. If we continue cooperation with our international creditors from the start of next year, then this is not very scary for our financial stability, but if we don’t do this … I want to remind you what awaits us next year.

Ms Gontareva’s comments come one day after Ukraine’s government took a big step to deepen deregulatory reforms by cancelling 360 rules that choked business.

But such incremental gains have been overshadowed by increasing concerns about the ability to adopt reform legislation – starting with next year’s budget — in parliament, where the government holds a wafer-thin ruling majority as infighting and calls for snap elections surge.

Addressing concerns about the legislature, Ms Gontareva lashed out at opposition leader Yulia Tymoshenko and other “populist” politicians who have in past weeks accused the central bank of corruption and destructive policies.

Ms Gontareva has won praise from the IMF and other western backers for shutting down more than 80 “zombie banks” during the past two years that were allegedly sources of related-party funding or money laundering operations for vested interests.

The move was unpopular with many local deposit holders, some of which joined protests backed by Ms Tymoshenko this month.

Ms Gontareva accused Ms Tymoshenko and other “populist” politicians in parliament of stifling reform efforts by blocking adoption of key legislation needed to keep the IMF programme on track, starting with pension and agriculture land market reform.

She concluded: “I want all to understand that we have reserves of $15.5bn today, but we will start exhausting these reserves each day and this shaky stability, which we have, we will also lose with each day.

“These machinations and populism, these political insinuations are shaking up our nation and our macroeconomic stability.”