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A Governor on the ropes
Rattled by unprecedented demonstrations against his tenure by Ghana’s political opposition, the governor of the Bank of Ghana described the protestors as “hooligans”.
The choice of language is uncharacteristic of Ghana’s suave and urbane leading central banker. When he was first appointed, few would have guessed that his term would see such a spectacle. Rarely, anywhere in the world, are central banks the usual target for mass protestors. And this Governor in particular came to office enjoying massive elite confidence.
For nearly a decade, until he decamped to the African Development Bank (AfDB) in 2011, he helmed the research function for the Bank of Ghana. In this role, he highly supported Ghana’s small but committed think tank and research-oriented activist community. When our community mobilized against what we saw as lazy banking, the Governor, in his then research-led capacity at the central bank, was a source of analytical influence.
Changing Habits
Then he got into the apex role, and everything changed. He began to push poorly conceived policies such as forcing massive recapitalization requirements across the banking industry when the real challenges were poor capital adequacy owing to years of failure to deal with toxic assets and poor corporate governance. Protests, warnings, and laments went unheeded. He stopped listening to the independent policy community, treating their views with contempt. Many specialized banks catering to niche segments of the economy were forced to close down for no sensible reason. Despite the brutal weeding out of small and specialized banks, capital adequacy continues to be a problem for a quarter of Ghana’s banks. And the fruits of the failed recapitalisation program are still shedding their seeds.
Legacy Unravelling
Meanwhile, the one bold action that could have defined his legacy, the closure of insolvent banks that previous governments did not have the stomach for, has had its aftermath badly mismanaged.
Whilst, elsewhere, publicly funded bank bailouts and takeovers have yielded nice profits for the State, a thoroughly lacklustre recovery and liquidation process in Ghana has saddled the taxpayer with billions of dollars of liabilities with no prospect of getting most of the money back. The US government, for instance, has earned more than $30 billion on its bailout investments due to effective recovery management.
After mooting costs in excess of $3.5 billion three years ago, following massive failures in the recovery & liquidation program (with a lower than 10% rate recorded in one category, for example), the Bank of Ghana stopped accounting to the public altogether.
One should therefore not make the mistake of assuming that the $5.45 billion loss that has triggered these unprecedented protests for the removal of the governor came in a vacuum. The disaffection has been brewing for a while. Judging from the history of missteps outlined above, one should also be inclined to take the central bank’s loud protests of innocence with a massive sack of salt.
Here is the case for the prosecution.
First, let’s get this out of the way: a central bank can indeed make losses, and many routinely do. As far back as 1993, the IMF’s Alfredo Leone did a fine paper cataloguing the possible sources and ramifications of central banking losses.
Credit: www.myjoyonline.com
Source: Bright Simons
