Gordon Robinson | Achieving real independence
This seems a good time to talk about “independence”.
On April 19, The Gleaner reported:
“In a new marker for central banking in Jamaica, the amended Bank of Jamaica Act took effect on Friday, April 16, giving the BOJ full independence to craft policy based on its priorities for the monetary system.”
Well, hip hip … . Wait a minute!
Is it only this Grumpy Old Man who finds it odd that a nation unable to construct or assert any real independence in the global economy and whose preferred governance system is totalitarian control over every aspect of economic life has suddenly been able to let go of central bank control?
Only me? Allrighty then!
Firstly, kudos to Nigel Clarke for even attempting this, which, were it done in reality rather than political illusion, would be a shining example of why more Cabinet members should have significant private-sector experience. For those asking, “Why is he nitpicking this exemplary step in the right direction?”, I can only tell you that it’s just another example of why constitutional reform is the only way forward. I’m not pooh-poohing the idea. I’m using the example to show you that Westminster governance is where good ideas go to die.
This is how The Gleaner quoted Nigel Clarke as contextualising the sea change to “full independence”:
“There was a time when the ultimate authority in supervisory matters was the minister of finance. That was removed (some years ago) , with the central bank gaining autonomy in supervisory matters. Now, the mandate of the central bank has been clarified. It’s to pursue price stability as well as financial-system stability, with price stability being the primary mandate.”
Nigel continued: “Credibility of the central bank in its role to maintain low and stable inflation is critically important. That credibility is enhanced when all citizens know that persons responsible for the conduct of monetary policy have independence in doing so. By operational independence, we don’t mean unconditional independence. For central bank independence to have democratic legitimacy, there must be an accountable, robust governance framework, and that framework must be transparent.”
Gotcha! Government has shovelled responsibility for any missed inflation targets, price instability or (God help us) another Finsac-style financial system collapse unto the BOJ. In the immortal words of the inimitable Orville Burrell, should any of these unpopular eventualities occur, Government, with an innocent smirk, can say “It wasn’t me!”
No problem. That’s as it should be. But would it be REAL?
THE NEW ACT
Under the new legislation (which, btw, would take Sherlock Holmes AND his magnifying glass weeks to pull together from scattered sources), the BOJ Board consists of a governor, senior deputy governor (still?), a deputy governor, and five (or six?) more (justice ministry’s website unhelpful).
Previously, all board members were appointed by the finance minister by “instrument in writing”. In real life, nominations would be taken to Cabinet, where PM (Oops! Sorry, “Cabinet”) would approve or adjudicate on any objections. Now watch for the standard three-card “independence” trick. The deputy governor and five directors are now appointed by “Governor-General in Council”. As far as I can find (not conclusively), so is the governor.
The reference to “in Council” is to the Jamaican Privy Council created by the Constitution. It consists of six members appointed “by the Governor-General, after consultation with the Prime Minister” [Section 82(1)] at least two of which should “hold or have held public office” [Section 82(2)]. The Constitution, basically, only gives the Privy Council powers to invoke a prerogative of mercy (pardons, etc), but it does also provide that “the Privy Council shall have such powers and duties as may be conferred or imposed upon it by or under this Constitution or any other law”.
So the Privy Council, appointed after consultation with the PM and unlikely to have any financial services experience, now has the task of appointing BOJ board directors and a BOJ governor behind closed doors.
Now THAT’s sure to guarantee “independence”. Right?
It gets worse (or better, depending on your perspective).
The new act provides:
“…. the appointment as Governor shall be on such terms and conditions and for such emoluments as may be determined by the Minister after consultation with the Directors of the Board. [Section 6(3A)]”
Yep, FULL independence! Similar provisions are applicable to all board members. And just to be clear as to who’s in charge regardless of misadventure:
“The Governor or, in the absence of the Governor or the Senior Deputy Governor, a Deputy Governor designated by the Board after consultation with the Minister shall be in charge of the day-to-day management and operations of the Bank … .”
Gather together, be brothers and sisters
we’re independent, we’re independent!
Join hands to hands children started to dance
we’re independent, we’re independent!
That song was as aspirational and optimistic in 1962 when icon Derrick Morgan penned and recorded it as is the tune now being sung by Nigel Clarke about BOJ “independence”.
Don’t get me started on the misdirection accomplished by staggered terms of office for board members. That certainly cements THIS Government’s appointees in place for a long time, so I doubt it’s a gift to anyone.
Any time important national agencies are appointed politically and in secret, there can be no systemic independence. Until we have a system of governance that demands accountability through transparency, any BOJ “independence” will be purely coincidental. Finance ministers, chosen from outside of Parliament, should be forced to bring their nomination for BOJ governor to Parliament for public vetting of qualifications and policy preferences by MPs representing constituents rather than political parties. Parliament should ensure, on our behalf, that no critical national appointment can be made privately by any finance minister or PM without checks and balances to ensure REAL independence. Terms and conditions of employment should also be transparent and ascertainable by law, NOT at the whim of any minister.
Nigel might consider taking his own advice: “For central bank independence to have democratic legitimacy, there must be an accountable, robust governance framework, and that framework must be transparent.”
A major source of public discontent at the BOJ had to do with the printing of money, euphemistically called “borrowing from the central bank”. This has fuelled insane 1990s inflation numbers and was the main cause of disquiet by average Jamaicans incapable of understanding financial gobbledy-gook.
This is how Nigel assured us that that concern was met:
“Furthermore, the act now prohibits GOJ from borrowing from the central bank, except in a declared national emergency by way of an order made by the minister, subject to affirmative resolution ... .”
So, there it is. Government can’t print money. Unless Nigel says it can. How? He may do so by Ministerial Order “declaring” a “National Emergency”. Like what? Money urgently needed for debushing the Old Ball and Chain’s pandemic head? Nigel’s “Emergency Order” would be made and signed in secret then brought to Parliament for majority rubber stamping.
Like Michael Jordan, unbelievaBULL!
I’m certain Nigel means well. He has become a genuine star in the political firmament, and this step towards BOJ independence proves his sincerity. But as long as he tries for BOJ independence within Westminster-style governance structures in a small politically tribal nation, he’s doomed to fail.
I’m sure current BOJ board members are of the highest integrity and independence of mind. But the system is likely to make it an extreme test of their patience, tolerance, and fortitude. Recently, the BOJ missed an inflation target and announced that the law required it to submit a report on reasons to the finance ministry. If the BOJ were truly independent, that report would go to Parliament, not to any ministry.
How has the system ensured continuity of purpose or performance? Even this good-idea first step can be overturned by a simple majority in a future Parliament. Constitutional mandates for transparent vetting of vital public sector posts like BOJ governor won’t be so easy to terminate or amend.
Nigel: “[Central Bank] credibility … is enhanced when all citizens know that the persons who are responsible for the conduct of monetary policy have independence in doing so.”
Exactly how will citizens know this? Real independence is achieved by a combination of qualifications and tenure. If we can ensure neither qualifications (through public vetting) nor tenure (in the absence of misconduct, insanity, bankruptcy, or criminal conviction), we don’t have independence. All we have is a new political scapegoat overseen by semi-tenured political appointees vulnerable to political suggestion.
Peace and love!
- Gordon Robinson is an attorney-at-law. Email feedback to firstname.lastname@example.org.