Four lessons on how not to choose a central banker
What you need to know:
- There are economic miracles that even very competent governors will not be capable of.
- It is clear that the Public Service Commission, despite having highly qualified persons, not only struggled with the task of identifying suitable professionals but seemed not to have had a clear idea about the role itself.
Earlier this week, the President forwarded to Parliament the name of a nominee to the office of Governor of the Central Bank of Kenya.
To my consternation, the Kenyan punditocracy attributed the momentary freeze in the weakening of the shilling to this announcement.
While the relief that there was a nominee awaiting vetting is understandable, to attribute the changes in the Kenya shilling to the nominee is to stretch the workings of an economic system.
That the Kenya shilling regained some strength on the same date as the announcement of the nominee is undeniable, but the triumphalism observed shows too many influential voices understand neither the role of the governor nor the constitutional process that leads to that nomination.
A boda boda operator holds a one-shilling coin at Igare Township, Kisii County. PHOTO | BENSON MOMANYI | NATION
THE GREENSPAN MYTH
The first lesson I draw is that some Kenyans respond to nominations to economic offices with the posture that was dominant in the United States during the late 1990s.
Back then, Alan Greenspan used arcane language to mesmerise journalists and members of Congress, giving the impression that central bankers are only competent when they have the aura of an oracle.
The view, in other words, is that central bank governors are magicians. Sorry, but they aren’t and we should desist from creating that expectation and loading professionals with that burden.
We must not make governors think that they must be glib performers before the press and legislators. The work of central banking is undeniably important, but the laws of Kenya and the rules that determine their policy choices are not elixirs.
There are economic miracles that even very competent governors will not be capable of. Indeed, a really competent governor need not be all-knowing, for monetary policy is not executed with as much precision and flair as Greenspan’s performances suggested.
Secondly, I agree with the consensus position that the recent process adopted for identifying a successor to the outgoing governor does not leave the Executive with much credit.
It was not only inordinately long, but also fraught with errors that suggest the screening of candidates did not commence early enough to ensure a smooth transition without a gap in the position.
DEFENSIBLE AUTONOMY
This delay and bungling reinforced the uninformed view that the absence of a sitting governor also meant Kenya’s monetary policy was absent. This cannot be farther from the truth, for the reason that not only was a deputy governor in place but also because the committees of the Central Bank of Kenya continued to perform their assigned roles.
What is the likelihood of the Monetary Policy Committee (MPC) of the Central Bank of Kenya being staffed by clueless people who would only respond to crises in the presence of a governor?
Thirdly, Article 231 (3) of the Constitution underlines the independence of the Central Bank in the performance of its roles. This autonomy is defensible and is not provided to the governor but to the institution.
It is only qualified by Article 231 (5) that obliges Parliament to pass legislation to facilitate that work.
Fourthly, the Public Service Commission (PSC) took responsibility for shortlisting nominees for the governor’s position. To my mind, the performance of the PSC in taking forward the process shows that amendments to the law are required.
'MODERN' CENTRAL BANKER
It is clear that the Public Service Commission, despite having highly qualified persons, not only struggled with the task of identifying suitable professionals but seemed not to have had a clear idea about the role itself.
The ostensible delays in nominations to Parliament are due to these difficulties. The conventional approach the Commission adopted is not apposite for appointing the modern central banker.
Parliament ought to grant full discretion to the President to conduct independent searches for individuals who are suited to this job, irrespective of their nationality.
This may require amendments to the Central Bank of Kenya’s statute to permit the president to conduct a thorough scrutiny of candidates before nominating one for parliamentary vetting.
It is true that candidates appointed in this manner may come to reflect the President’s own prejudices. However, these would be checked through the vetting process that is still the responsibility of Parliament.
What Parliament would have to satisfy itself about is not whether the nominee is an oracle or Alan Greenspan wannabe, but that he or she understands how to relate to arms of government in addition to discharging the constitutional duty of independence from direction and control.
Kwame Owino is the Chief Executive Officer of the Institute of Economic Affairs (IEA-Kenya), a public policy think tank based in Nairobi. Twitter: @IEAKwame
