Who should appoint the State Bank Governor and its board of directors ? Should it be the prerogative of the Prime Minister or the President under the new constitutional dispensation on the anvil. The issue is under review.
At stake is the question of the SBP autonomy that President Pervez Musharraf assures that the central bank will continue to enjoy after the October elections. How will it be guaranteed, is the moot question? Under the 1973 Constitution, it is the prerogative of the Prime Minister to nominate the SBP governor and the members of the board.
Policy makers are taking a fresh look at the constitutional provision. The National Reconstruction Bureau( NRB) is believed to be examining a proposal as to whether it would be appropriate to amend the constitution to empower the President of Pakistan to nominate the SBP governor and the board. The views of the State Bank Governor, Dr.Ishrat Husain are also being appraised by the NRB.
The issue is also believed to have come up in a presentation on the State Bank’s performance by Dr. Ishrat Husain to the president when he visited the State Bank on March 9.
A five-year tenure of the SBP governor was also proposed so that the governors could be secured from undue pressure from the government of the day. Dr. Ishrat Husain, however said, he did not seek this provision for the incumbent. The discussions were recorded by the President’s staff. Currently, the governor’s tenure is initially for three years, extendible by another three years.
Dr. Mohammad Yaqub who enjoyed, quite often, uncomfortable equation with two former prime ministers, Nawaz Sharif and Benazir, was asked to resign by the military regime soon after General Pervez Musharraf took over. He has survived the political governments but not the military regime.
In a country, where respect for constitutional provisions are found wanting, the next elected prime minister, could replace the governor and the board, if he finds them non-conformists. So far, the autonomy that the State Bank has enjoyed is more formal and less real.
The governments have tended in the past to interfere in day- t-day operations of the State Bank. As per understanding with the IMF, the government was supposed to appoint head of banks and financial institutions from a panel of top professionals recommended by the central bank. Islamabad got the name of the person of its choice included in the panel through telephone calls and appointed him as chief executive of a bank or DFI. Formalities were completed on paper and yet favourites were appointed. The former governor. Dr. Yaqub, was critical of the government policies in public but generally did not resist government pressures to do what he was asked to carry out.
It is different with Dr. Ishrat Husain. He defends government policies as he considers himself as part of the present team of the country’s economic managers. He says that at various government forums, he puts across his views and after discussions on various aspects of an issue, collective decisions are taken. He says, he is party to the decision and therefore, morally bound to defend them.
In case of a difference on any key issue, he explained to Dawn, recently that a decision to which he does not subscribe and feels it would do damage, it would be his moral duty to go either public with his view or resign, as the situation warrants.
The country’s economic managers share common perceptions because they have the common background and experience, having served the IMF, the World Bank or the Citibank. They jointly contribute to the formulation of the IMF agenda,a mixture of the Fund’s conditionalities and government’s “home grown” programmes and policies.
While the government has given the State Bank some degree of autonomy, the IMF has given the central bank an agenda that restricts its policy options.
To quote the Finance Minister, Shaukat Aziz, the good news is that vulnerability of the external sector has been reduced and the economic sovereignty is being regained. State sovereignty is compromised by super power politics and the IFI’ agenda. and therefore. autonomy remains an illusion in domestic affairs.
In a country, where constitution and its provisions do not enjoy sanctity, constitutional protection is like asking for the moon. It is ground realities in real politics, the balance in real power, that decides the fate of individuals and policies, programme and action plan.
Yet, a serious effort has to be made to establish the supremacy of the constitution.
Ziaul Haq’s 8th amendment nor Nawaz’s 13th amendment could impart political stability as the country lacks a consensus on fundamentals or an agreement on core principles that are needed to govern the country.
It goes to the credit of Dr. Ishrat Husain that he has created different layers of autonomous decision making units within the central bank, though critics say it is more formal than real when key issues come up, for instance, before the corporate management team. The presiding officer has the final say. Yet unlike his predecessors, he does not tend to concentrate all powers in the SBP governor. He has made a good beginning. Similarly, he has allowed the commercial banks more freedom as they move from a regulated financial sector to a mark-driven agenda set by the IMF.
“It is a benign environment”, says Mr. Zakir Mahmood, President, the HBL, for the nationalized commercial banks to perform better.
A major reason for improved NCBS performance explained by bankers by the autonomy that they enjoy.
“As a shareholder”, adds HBL president, “the government has given objectives to the management and you are judged by your performance. Interference is minimal or not at all. It has made possible for the banks to pursue consistency in restructuring and embark on a policy, and to continue in the set direction.”
Supported by the SBP and the MOF, the managements have been made responsible to the board of directors.
Stating that” the importance of independence cannot be over-stated Zakir Mahmood adds, “It encourages the management to take immense responsibility. The board lays down strategy and policy, monitors performance and procedures. They also provide regular feed back.”
“Independence is critical” and protection and insulation from outside is pre-requisite for the banks to be able perform.
A bank president said that government initiatives are placed before the board, discussed threadbare and in case of divergence of views, the ministry of finance is asked to reconsider their proposals. The MoF shows understanding for the board’s position and accepts them.
For the system to work, says a banker, good corporate governance is being reinforced by the support of the regulators and the shareholders and a strong and professional state bank. How to protect this” benign environment” beyond October is an issue agitating the minds of the present policy-makers.