Will the BoM get back its credentials?
A bench of the Supreme Court presided by Justices Matadeen and Caunhye delivered judgment on 24th March on an application made by the “Board of Directors” of the Bank of Mauritius through the Secretary of the “Board”. The applicant prayed the court to concur with its view that it is the Board that is entitled to appoint a consultant, being an attorney, to represent the Bank in two prior cases filed against the Bank by an employee. The Management of the Bank had already designated another attorney for the purpose. This designation was disputed by the “Board” as being outside the powers of the Management. The court has interpreted the powers conferred by the Bank of Mauritius Act 2004 (the Act) on the distinct parties and it has turned down the application made by the Board, with costs. In other words, it is the opinion of the court that such powers do not lie with the other Directors of the “Board”.
That the court has given its judgment with costs is a serious matter. We do not want to prejudge any appeal that can still be made against the Supreme Court’s decision. We are bound however not to overlook the fact that the court has decided that the applicant (i.e., the “Board”) should defray the expenses incurred for having brought the matter before the court. If this is tantamount to a view that it was not warranted for the “Board” to bring the case before the court and the judgment makes it clear that the “Board” was acting outside its remit, then it gives rise to other consequences under the law appointing the “Board”.
In particular, section 17 of the Act is relevant. This section states at 17(c) that ‘a person shall be disqualified from holding the office of Governor, Deputy Governor or other Director if he has committed any default or breach of trust or is guilty of serious misconduct in the discharge of his duties under this Act which, in the opinion of the President or Minister, as the case may be, renders him unfit to be appointed or to continue in office’. The reference in this section to other Director is to the members of the “Board” other than the Governor and the Deputy Governors. That the Supreme Court has decided to inflict costs on those other Directors who presented the case before it is material. Such Directors are appointed by the Minister of Finance and the law lays it down that it is for him to decide whether the concerned Directors should continue in office after the Supreme Court has rejected their petition and asked them to pay the costs related to the proceedings. Two of them have also been appointed to the Monetary Policy Committee of the Bank which is responsible for taking interest rate decisions that have a direct impact on the rate of remuneration on savings held by the public in financial institutions and the rate of interest that the government consequently pays to bondholders on its own public debt. Holders of such important positions should have an impeccable record. Does the decision of the Supreme Court go in this direction?
Having said all of the above, another question crops up as to why the Bank of Mauritius which was once a sterling institution of the country has become messed up to the point that we’ve been seeing for a number of years. The answer is simple: there has been excessive meddling at the political level not only with the independent working of the institution but even with the law governing it. It is not correct to say that it is politicians who have always been poking their nose to get the central bank to take the short-sighted decisions they would want it to take. More often than not, the top administrators of the Bank have, in a manner of currying politicians’ favours for themselves, invited the politicians to delve into matters that the central bank alone should have been competent to deliver without any external interference. This process has gradually led to the devaluation of the institution that has contented itself to flatter the already too large egos of the politicians by resorting to them “for advice”.
This is the process by which politicians have glorified their protégés by twisting the legislation to give unmanageable powers to single individuals. Such excessive powers are not in keeping with the most pedestrian rules of corporate governance. No amount of expedition of business by the central bank could have justified the amount of power leverage that was deliberately introduced in the Act of 2004. Without such distortion, things were working out perfectly for the central bank. Checks and balances were in place. The Board was respected and Management did not trespass the bounds of decency and explanation for its acts and omissions that such an honourable institution should have set the example for in public.
Should politicians not have foreseen the perpetuation of conflict that such legal dispositions would give rise to? Should they not at the first stirrings of emerging conflict, admittedly instigated by some weird political behind-the-scene manoeuvring, have reviewed the Act so as not to reduce the organs of the institution to the size of mere puppets? Why has the situation of conflict been allowed to endure for so long? To the point that employees have had to institute proceedings before the court to get matters resolved? Despite all the flaws that the Bank’s administration projected in the period before 2004, it must be admitted that things were never as bad as what we’ve been seeing. The legislation of 2004 introduced the venom that has helped unsettle the institution so badly in the recent years. The law needed to be amended to make matters clear, as the present Governor of the Bank was asking for. Yet, nothing was done to restore the balance with the result that the central bank now has to appear before Fact Finding Committee and the Supreme Court must sort out differences at the highest level.
Not all central banks have the “good fortune” to shine in this kind of light. It is a great embarrassment that all these bad things have come to a head at such an inopportune moment. Things could have come to a better pass if politicians had decided to keep their hands off the institution and if they had taken the decisions that were warranted at the right time.