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Interview of Ramesh Basant Roi, former Governor of the Bank of Mauritius

4 décembre 2008, 01:00

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Interview of Ramesh Basant Roi, former Governor of the Bank of Mauritius

What’s the role of the Governor? It appears that he is answerable to nobody except the Board of Directors. Are we right to say that the Board is the ultimate decision-making authority at the Bank ?

The Bank of Mauritius falls outside the purview of our Companies Act it is a unique institution playing the role of a central bank within a well-structured legal framework. As per the Bank of Mauritius Act, the Governor is the Chairman of the Board of Directors of the Bank. The Governor sets the Agenda of Board Meetings and leads Board discussions. The Governor is answerable exclusively to the Board. The Board of Directors is the supreme decision making authority of the Bank. You may wish to know that in law only one exception over which the Board of Directors of the Bank does not have a say is in monetary policy decision making. The law makes one exception and only one exception over which the Board does have no authority.

The Bank of Mauritius Act 2004 was passed under your Governorship. What consideration led you to retain the word ‘answerable’ in the Act and what does it actually mean ?

Any Governor of any central bank has to be answerable to an authority. In the case of the Bank of Mauritius the Governor, if he is not answerable to the Board, he would be answerable to nobody in the country. Leaving an organization like the Bank of Mauritius that manages the foreign exchange reserves of the country aw well as the country’s vault loaded with local currency and coins in the hand of a single person at the top of the institution with unchecked powers would have been an irresponsible way of drafting the central bank legislation. It was deemed inappropriate to make the Governor answerable to politicians for very good reasons. The Bank has to be protected against the influence of politicians. That is why the Governor was made answerable to the Board of Directors in the Bank of Mauritius Act 2004.

By ‘answerable’ I understand that the Board may query the Governor on administrative as well as on non-administrative issues. It’s not a word full of emptiness – far from it. If the Board is not satisfied with the Governor’s stand or method of running the show at the Bank, the Board may direct or instruct the Governor to proceed in accordance with the majority’s decision at the Board level. It’s a question of checks and balances in the operation of the Bank. Some fifteen years ago, one of the Governors of an OECD country, is reported to have said ‘I am the Bank of …... The Bank is me.’ This statement is said to have been his sunset as Governor. I have known the humility of central bankers and the arrogance of central banking. I now witness the arrogance of central bankers making futility of a central bank.

Who decides on the organizational chart of the Bank and on the employment of managers at the Bank ?

Any change in the organizational chart definitely affects the entire institution, in this case, the Bank of Mauritius which is the central bank of the country. The Board of Directors has to have a say in the organizational chart of the Bank.
The famous ‘Mission and Vision’ statement of the Bank is incorporated in the legal framework of the Bank. The top management of the Bank knows best about the quality of the personnel required to fit in the organizational chart of the Bank. But that does not mean that the top management is infallible. The Board of Directors provides for the checks and balances in the event that abuses of authority are detected. Governors are not faultless Buddha. The Board of Directors is, as I said at the start, the supreme authority of the Bank of Mauritius. The Bank of Mauritius Act says it quite explicitly.

According to you, is it urgent to re-structure the BoM ? If yes, why ?

It depends on the vision of a Governor and whether he is willing to ride the horse in the direction it is moving. In my case the headwind was strong. I proceeded differently and played by the rules of soccer. I had chosen to proceed on a step by step basis. When I had taken over the Bank as Governor, the Bank was lagging far behind other central banks in terms of institution building. The Bank had a very limited number of staff with the necessary skills. A broad based restructuring of the Bank required a corresponding number of skilled professionals to fit existing gaps and new gaps in the evolving set up. But the Bank did not have that many personnel with the desired skills. And I did not want the Bank to nominate unskilled guys in key positions at the expense of taxpayers and get stuck with them for dozens of years. That would have been irresponsible on my part. I saw it happening at the Bank in the 1980s and I did not want to repeat it under my Governorship. With hindsight it was a wise decision to let the temperature rise that let the patient, I mean the institution, die. I did not reform in haste to finally repent at leisure.

Is the lack of skills that sizeable ?

There is a handful of really competent economists and guys with advanced regulatory and supervisory skills at the Bank. But I still believe that the Bank is acutely short of guys with the desired analytical skills in modern central banking. Just to make my point I ask the public to read the Financial Stability Report issued by the Bank a couple of months ago. The Report is a total disaster. It does not at all reflect the competence of the few brilliant guys the Bank has in its roll. It’s more of an abridged version of the usual Annual Report of the Bank than a Financial Stability Report. The Report shies away from its main theme of macro-economic stability/instability, financial stability/instability, systemic stability/instability and any potential threat to financial stability stemming from the weaknesses of particular economic sectors due to recession abroad. Nor does it deal with the implications of short term external liabilities for financial and macro-economic stability. Have a look at the Report and you will discover the poverty of analytical skills of the lead author or authors of the Report. The Governor deserves credit for the initiative to issue the Report.

Sure, there is a need to restructure. The policy challenges in the years ahead are too many. But the Bank has very limited number of dependable guys to fit in in the new structure. It’s best to do with a few available competent guys in the initial stages and look for competent guys from outside than lock the Bank in a trap for years with guys having the wrong kind of skills or no skills at all. A few barking dogs are always a better choice than a sleeping lions with political clouts in the current set up.

Is the disagreement between the Governor and the Board of Directors due to a misunderstanding of the BoM Act ? How is the problem resolved in such a situation? Is there any internal mechanism to re-establish order ?

There have always been disagreements. After all if everyone thinks alike at the Board level, no one is actually thinking enough. But this time the disagreements look like the equivalent of blood in the street following a road rage. It’s actually fresh blood from old wounds.

Let me say one thing. Lots of friends from international institutions have spoken to me in recent months. The comments made by some of them are in appropriate for mention here.  A risk that seems to have been completely ignored is the reputational risk of the Bank. The issue is much more than a simple embarrassment. Credibility is an essential intangible asset of a central bank. That is an asset that should be preserved at any cost by the Bank.

When we have the worst financial crisis and a serious threat of a deep and lasting recession like the Damocles’ sword over our heads we cannot do with that much infighting at the central bank. It seems that pretty soon both sides are going to run short of bullets. But neither of them will the guns.

There is no pre-cooked formula to resolve such situations. After all, such situations are not expected to arise in the worst of circumstances. These guys are central bankers after all, not warring aliens ped from God knows where. The Governor and the Board of Directors are certainly not sleeping angels that need a kiss of affection by the President or the Prime Minister of the Republic. In the best interest of the financial sector and the Mauritian economy, the trouble-maker(s) should be identified and booted out right away..

Is the BoM’s policy sufficiently concordant with the economic policy that the Government intends to pursue ? Can the BoM take any policy action under present circumstances bearing fully in mind that it goes contrary to Government’s policy ?

In 1956 the German Chancellor Konrad Adenauer had called the German central bank to delay the increase in interest rates in Germany as elections were approaching. The German central bank had strongly resisted the call. Everywhere politicians are the same. Their vision does not go beyond the date of their next elections. In normal times the independence of central bank independence the world over should be defended vigorously from political influence. But independence of the central bank does not necessarily mean that it should follow policy in opposition to government.

We are today living in extra-ordinary times that require extraordinary co-ordination of monetary and fiscal policies. With most of the leading economies of the world having slipped into an economic recession the depth and length of which is still uncertain, we expect without being alarmists strong economic and financial headwind against us in the near future. If two government agencies, one responsible for fiscal policy and the other for monetary policy, are in disagreement, one of the two should take a step back. A government that has not yet set the inflation target for the central bank to achieve takes the driving seat, wrongly or rightly.

But under normal circumstances the fact remains that a central bank can and should ignore government’s policy priority if it suspects attempts of misuse of certain levers of power to meet political ends at the expense of price stability or even growth. I reiterate that central banks have long term policy goals. But governments have short-term policy goals and interests.