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UPDATE 2-Deputy governors warn on IMF loans after Ukraine central bank reshuffle

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KYIV, Oct 26 (Reuters) - A recent reshuffle of responsibilities at Ukraine’s central bank threatened its independence and Kyiv’s $5 billion International Monetary Fund deal, two deputy governors of the bank warned on Monday.

The central bank last week stripped Deputy Governor Kateryna Rozhkova of her role as the head of banking supervision, removing a prominent reformer whose position has looked shakier since the arrival of a new central bank governor in July.

The move was sensitive because Rozhkova played a major role in driving banking reforms that culminated in the 2016 decision to nationalise PrivatBank, the country’s largest lender, against the wishes of its main owners.

PrivatBank’s future and Ukraine’s performance in fighting corruption and implementing reforms are key to the government’s being able to draw IMF funds to fight an economic slump caused by the coronavirus pandemic. The IMF has stalled on disbursing more money to Ukraine since the new deal was agreed in June.

In particular, the IMF and Ukraine’s other international backers are wary of any attempt to undermine the independence of the central bank. The previous governor, Yakiv Smoliy, quit in July, complaining of political meddling.

“It was done in a murky and non-transparent way,” Deputy Governor Dmytro Sologub wrote on Twitter about the reshuffle. “I noted ... that it might hamper IMF cooperation.”

Rozhkova said it threatened the central bank’s ability to make impartial decisions.

“Finally, it does not comply with the principles of independence, which were the basis for the transformation of the National Bank in 2014-2015, which was carried out, taking into account the requirements of the IMF,” she said.

The central bank defended the decision to assign Rozhkova new responsibilities, saying it was done to meet the needs of its expanded mandate to cover the regulation of the non-bank financial market. The IMF had no immediate comment.

PrivatBank’s fate is politically sensitive because its former main shareholder, Ihor Kolomoisky, was an early backer of President Volodymyr Zelenskiy’s election victory in 2019.

Zelenskiy has denied any undue favouritism towards Kolomoisky. Last week, Zelenskiy blamed the IMF loan delay on the actions of unnamed people working against the interests of the state. (Editing by Larry King)