BoM: Washing the Dirty Linen in Public
Finally, the decision was taken to institute a fact finding committee (FFC) to look into the internal conflicts that have been shaking the administration of the Bank of Mauritius for quite some time. The Governor has stepped down after a short meeting with the Prime Minister. The contract of the Second Deputy Governor, who was in perpetual conflict with the Governor, has not been renewed. The Bank is under the charge currently of the First Deputy Governor. The Bank, which is an institution in charge eminently of the economic administration of the country on the financial side, stands depleted and seriously impaired.
Certain members of the board and the Governor have been on daggers drawn for quite a while about defining their respective territories in the Bank. Those Board members went as far as to address the media from the pavements in front of the Bank, having been denied room within the premises, to ask the Governor to step down to allow the FFC to do its work unimpeded. This was immediately upon the announcement made months ago by the Minister of Finance that an FFC would be instituted. Press communiqués were issued by the concerned members of the board to vindicate their positions. The Bank’s management had a go at it as well.
Central banks are repositories of public confidence. The public has to have confidence in an apex public financial institution which will protect its interests against any aberrant behaviour by owners and managers of private financial institutions that could put their deposits and business activities in jeopardy. That public institution is no other than the Bank of Mauritius in our case. The financial system of the country should, on its part, be able to look up to a respected public institution known for its rigour, impartiality and discipline to give the right signals regarding its market conduct. That institution is no other than the Bank of Mauritius in our case. We are not one of those obscure jurisdictions which host Al Capone banks of all sorts; we have managed to get some of the world’s highest ranking finest institutions to set up in Mauritius. These twin responsibilities of the Bank of Mauritius vis-a-vis the public and the financial system require it to live up to the highest standards of conduct instead of delivering itself and its internecine quarrels for public review.
It may be said that the Bank of Mauritius had been drifting in the wrong direction even before the present management took over in 2007. The mishandling by the central bank of the scandal which erupted at the Mauritius Commercial Bank (MCB) in 2003 appears to have been directed to please certain holders of political power at the time. Right from the start, it was clear that the management and board of the MCB had failed in their duties to keep control over how their cash resources were being disposed of. If the smaller banks of the country would have allowed so much of money (Rs 800 million) as the MCB did, to be given away as potentially non-returnable loans without scrutinising to whom and under which conditions every rupee of depositors’ money was being dished out and will be returned to the bank, several of them would have gone bankrupt causing irreparable damage to the image of the country’s financial system.
This potentially systemic damage was avoided simply because the MCB had enough resources to plug the loophole. The Bank of Mauritius chose to camouflage this fundamental failure by appointing at its own expense a high-sounding and terribly costly international forensic investigator to look into the issue. Its finding: the pedestrian fact that MCB did not have sufficient controls to identify and control as to where its funds were going to! Its recommendation: controls need to be put in place! It was all a waste of resources by the Bank of Mauritius and much loss of its prestige.
The Bank of Mauritius Act of 2004 was similarly written in such a way in specific places as to give the Governor of the Bank powers that could make him an unaccountable plenipotentiary in the Bank. The power of the Board to look into the broad administrative aspects of the Bank’s management was rubbed off or left dangling in mid-air. The independence of mind previously conferred upon the deputy governors was made subservient to the governor. All this surely amounts to anti corporate governance in a public institution which was actually put into practice from that time.
All the imperfections that had crept into the Bank of Mauritius Act dictated that the Bank should itself have tackled the problem initially in 2007 and not allowed the situation to fester. Amendments could have been proposed that would have given the board and its governors a clear mandate amongst themselves. Given the international implications of the good standing of the central bank, the points of contention should have been dealt with discreetly but firmly without allowing the matter to spill out into the public. That might have necessitated urgent political decision-making to repair all the ambiguities that the law of 2004 had introduced short of the Bank’s management submitting all the amendments necessary to achieve good governance in this key institution of the country. Had the Minister of Finance intervened to bring about those amendments, the whole matter would have stopped there and then.
What do we see instead? The Bank became the object for some time of a political power struggle with board members interposed in between the main protagonists. Surely, the Bank has lost much of the high regard in which it should have been held in the eyes of the financial institutions which fall under its supervision. To whose benefit will it be if bankers were to make fun of the stressful situation that prevailed at the central bank in lieu of looking up to it with awe and respect as is the custom? The staff of the Bank must have been stressed due to these conflicts and paying less attention to their real work. Instead of concentrating on delivering upon their duties, the attention of some of them would have been diverted to what they would stand to benefit from if certain heads were to roll from the central bank. This is indeed a poor showing on the part of the authorities. The latter should be asking themselves why other countries do not land their central banks into the hands of FFCs and into cumbersome situations such as this when the world expects Caesar’s wife and the like of her e.g., the central bank, to be above reproach!
We have landed, it appears, into an era of FFCs to sort out multiple problems. To our mind, governments should be more decisive when the prestige and future standing of the country’s key institutions is on the scales; they should know how to cut the Gordian knot in those highly sensitive cases and reserve the FFCs to other more mundane matters! This is said with due respect to Sir Victor Glover and we hope he will bear with us.