Unlike the relationship between the Governor of the Bank of England and the Chancellor of the Exchequer in the UK, or the relationship between the Chairman of the Federal Reserve Board and the Secretary of the Treasury in the United States, it is apparent that our Central Bank is now expected to function under the direction and control of the Ministry of Finance.
That may be a convenient political arrangement for the executive, but it is bad for the economy. The unfair dismissal of Jwala Rambarran as governor of the Central Bank was more about politics and less about economics. His forthright declaration on December 4 last year, that the economy is now in recession was confirmed by Prime Minister Rowley in his address to the nation last Tuesday. So where did the governor go wrong? Both he and the Prime Minister were on the same page.
Perhaps it was his revelation in the public interest of the largest consumers of foreign exchange. That would have offended some urban corporate elites moreso than the political directorate. Intense pressure would have been put upon the Government by those elites to dismiss Rambarran. He disturbed the social structure, rather than the economic architecture.
In an era where transparency is the clarion call for good governance, the former governor was brutalised for accounting for his stewardship in relation to the allocation of foreign exchange. This argument will never go away, but the political cocktail of an angry Finance Minister (for the declaration of a recession independent of him) and an angry corporate elite (for the revelation of the leading consumers of foreign exchange) was enough to force the Government’s hand.
Given the bitterness of the politics surrounding the Central Bank since the change of government, there was an expectation that someone other than Dr Alvin Hilaire would have been appointed Governor. Be that as it may, Hilaire is a Central Bank insider with good academic qualifications. His two predecessors also had good academic qualifications with both Ewart Williams and Jwala Rambarran being named by UWI, St Augustine, as being among their top 50 graduates in 2010 for the 50th anniversary of the campus.
Hilaire’s challenge will be to attempt to be independent in an atmosphere where the political directorate is demanding that the Central Bank operate in lockstep with the Ministry of Finance. He will also know that the rumblings about possible criminal charges against Rambarran are designed more to keep him in check than anything else.
Hilaire has been with the Central Bank for about 20 years. He would have seen the collapse of Clico under the stewardship of Governor Ewart Williams and he would have seen the resurrection of Clico under Governor Rambarran. He has been on either side of financial collapse and revival.
In whatever way he can, he must make every attempt to regain the independence from the Ministry of Finance that Jwala Rambarran had cultivated because taking instructions from the Ministry of Finance will not be in the best interests of the country. Additionally, he needs to address the perception created by the manner of his appointment that he is a PNM governor of the Central Bank.
He cannot now contradict the former governor on the fact of the recession as he would have the same Central Bank data that Rambarran used. Having too cosy a relationship with the political directorate can cause collapses like Clico, HCU, Summit Finance, ITL, the 1980s pyramid and other financial fiascos in our economic past. That will be a balancing act for him because the Rowley administration has made it clear across the board that it is not prepared to tolerate too much deviation from their line, or even to permit crossovers from the last administration. Jwala Rambarran and Jearlean John are prime examples of both, while there are many others as well.
The financial downturn is the first major test for the Rowley administration. The postponement of the address to the nation by the Prime Minister from two Tuesdays ago to last Tuesday may have had more to do with removing Rambarran before the address rather than after.
The Prime Minister would have endorsed Rambarran’s assertion of a recession if he had given that address before his removal. Politically, it was better to remove him first and then give the address to the nation after. While that was a better political option, the economic reality would not have changed between the Tuesday before Christmas and the Tuesday after Christmas.
As far as functioning democracies go, it is important for the Central Bank to be independent of the Ministry of Finance and yet be able to collaborate. For example, Rambarran complied with the requests of the Minister of Finance to revert to the pre-2014 distribution system for foreign exchange as well as to place US$500 million into the domestic foreign currency market. When the Sunday Guardian revealed that the money was gone in its November 15 edition, questions were asked by the Prime Minister and others. The transparent answer to those questions cost Rambarran his job.