Transparent competition for the position of the DGF Managing Director: IMF requirements and challenges for the National Bank of Ukraine

The Deposit Guarantee Fund (DGF) plays a critical role in Ukraine's financial system, protecting the interests of depositors and contributing to the stability of the banking sector. In view of this role, international partners are convinced that the appointment of the DGF Managing Director should be transparent and based on a competitive selection process. Such a requirement is contained, in particular, in the Memorandum of Cooperation between Ukraine and the International Monetary Fund (IMF). However, despite the obvious need and requirements of foreign creditors, Ukraine has not yet introduced a proper procedure for appointing to this key position, UNN writes.

IMF requirements: transparency and openness

The IMF has repeatedly emphasized the importance of transparency in the appointment of key state institutions. The Deposit Guarantee Fund is no exception. IMF experts emphasize during negotiations with the Ukrainian side that an open competition ensures the selection of the best candidates with the necessary experience, knowledge, and competence to effectively manage the institution. This, in turn, increases confidence in the financial system on the part of both the public and international partners.

Currently, Ukrainian legislation does not provide for an open competition for the position of the DGF Managing Director. At the request of the IMF, Ukraine agreed to develop and implement it in the spring of 2025. This, in particular, is enshrined in the Memorandum signed with the IMF. The National Bank, which is the regulator of the banking system, including the Deposit Guarantee Fund, should develop the relevant amendments to the legislation.

During a report to the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy, the NBU Governor outlined a list of strategic objectives for 2024 and mentioned "thorough implementation of our commitments, in particular to the IMF and the EU" as one of them.

Challenges for the National Bank of Ukraine

The introduction of an open competition will require the NBU to develop new regulatory documents and establish an independent commission to evaluate candidates for this position. Currently, according to the law, the appointment of the DGF Managing Director is the responsibility of the Fund's Administrative Board, which includes representatives of the NBU and the Ministry of Finance. 

After the previous head of the DGF, Svitlana Rekrut, resigned, the issue of appointing a new managing director of the Fund arose. Currently, according to media reports, two main candidates are being considered - Pavlo Polarush, head of the National Bank's Department for Work with Troubled Assets, and Olga Bilai, acting managing director of the DGF.

Journalists found outthat the IMF Administrative Board wants to appoint a new head in a closed mode, despite the fact that the IMF openly criticizes this approach to personnel policy.

In fact, in accordance with the agreements with the IMF, an open competition for the position of managing director of the DGF should take place in six months. Until then, Bilyi can act as the head, because what is the point of appointing a new manager for 6-7 months and then replacing him?

However, the National Bank's haste may be due to the fact that Polarus, according to media reports, has a far from impeccable reputation. He has, as claimed, repeatedly traveled abroad since the start of the large-scale invasion. In particular, journalists reported that in November 2022, Polarus received permission to travel outside the country from the odious former deputy defense minister, who is currently a suspect in corruption crimes. He was allowed to travel abroad in a luxury Lexus car to receive humanitarian aid. However, it is not yet known on what grounds Polarush traveled abroad from February to November 2022.

Member of the Verkhovna Rada Committee on Transport and Infrastructure Mykola Velychkovych believes that law enforcement should investigate Polarush's travels abroad. And a member of the Verkhovna Rada Committee on National Security and Defense, Hennadiy Kasai, does not rule out that Polarush may have problems during the special vetting process as a candidate for the position of managing director of the Deposit Guarantee Fund.

Consequences of delay

Ignoring the demands of international partners for a transparent process of appointments to key positions, including the Managing Director of the DGF, could have serious consequences for Ukraine, experts say. First, it could lead to a loss of trust on the part of the IMF, which, in turn, could negatively affect further funding from this organization. 

"If the IMF demands an open competition for this position, the Ukrainian authorities should not only listen to it, but do so. Because if Ukraine continues to take steps step by step contrary to the recommendations of our partners, from whom we are endlessly taking various kinds of assistance, from military to financial, then at some point the question of providing this assistance or reducing it will simply arise," says Andriy Novak, chairman of the Committee of Economists of Ukraine.

The government should not forget that in the context of Russia's large-scale war, the Ukrainian economy is completely dependent on foreign financial assistance, said Ruslan Bortnik, director of the Ukrainian Institute for Policy Analysis and Management. The expert emphasized that the political leadership of our country should always be guided by national interests when making decisions.

"In the current conditions, in the conditions of total dependence on external financing, it is certainly dangerous to ignore the interests of the IMF, it can lead to the suspension of cooperation, it can lead to certain financial and economic problems for the Ukrainian economy... So, given our financial dependence, we must take into account the IMF's requirements, given the financing that we cannot do without now," Bortnik said.

In addition to the threat of disrupting IMF assistance, the delay in developing an open competition procedure for the head of the Deposit Guarantee Fund has domestic risks. This could undermine depositors' confidence in the DGF and the banking system as a whole, especially in times of economic instability. 

 "In any case, this institution is extremely important in the financial system. The public confidence in the banking system depends entirely on the functioning of the DGF," Bortnik added.

Finally, the appointment of a person with an impeccable reputation may alienate foreign investors and donors who perceive the lack of transparency in management processes as a signal of risks in the country's economy.

Therefore, the introduction of an open competition procedure for the appointment of the DGF Managing Director is not only a requirement of the IMF, but also a prerequisite for strengthening confidence in Ukraine's financial system. The National Bank of Ukraine should take this step to ensure transparency, openness, and professionalism in the work of key institutions. This is the only way to guarantee the stability of the banking sector and maintain the support of international partners.

Recall

According to the Ministry of Finance, this year alone, budget support from the IMF is the second largest external financing for Ukraine. In 2024, it will amount to $3.1 billion. In total, the state budget has already received $7.6 billion as part of cooperation with the Fund.

The next IMF mission in the context of preparations for the fifth review of the Extended Fund Facility program will begin in September. The expert discussions will focus on Ukraine's compliance with the terms of the Memorandum of Economic and Financial Policies. It is planned that as a result of the successful review of the program, Ukraine will receive the next tranche from the IMF in the amount of about $1.1 billion.