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Micah Cheserem: The novice CBK boss many loved to hate

FINANCIAL STANDARD
By Dominic Omondi | August 17th 2021

Micah Cheresem, then CBK Governor as he displayed the new Sh500 notes in 1998.

When then 42-year-old Micah Cheserem took over from Eric Kotut as the Governor of scandal-hit Central Bank of Kenya (CBK) in 1993, there were murmurs.

The secretary of opposition party DP John Keen said this was “a Kotut taking over from Kotut.”

Because he hailed from Elgeyo Marakwet District, some critics were quick to speculate that perhaps the then powerful minister Nicholas Biwott, who also came from the area, had a hand in his appointment. While acknowledging his financial experience, The Standard noted that Cheserem lacked “political gravitas and experience of the sort bureaucratic infighting that is part and parcel of the public service.”

The then Ford Asili MP for Shinyalu, Japheth Shamalla, taking a swipe at Cheserem’s lack of professional qualification and experience, said this was not the time to experiment with novices at CBK. The apex bank, he said, needed someone with substantial banking experience.

Cheserem, just like his predecessor, was neither a trained economist nor a seasoned banker. He joined CBK from East African Industries (now Unilever), where he was chief accountant.

Yet, he was taking over a battered CBK whose compromise had nearly brought the economy to its knees.

Rather than being business-as-usual, Cheserem’s replacement of Kotut turned out to be like the natural pattern of the day replacing the night.

While Kotut had caused prices of basic commodities to rise by over-printing money, Cheserem’s attempt to mop up the excess liquidity in the economy made money disappear.

However, there is consensus that Cheserem was able to achieve his assignment by the time he left office in a huff in 2001. So much so that he was named Africa’s banker of the year by the prestigious Euromoney magazine in 1997. 

Within three years, Cheserem had restored stability in the banking system through stringent reforms, including the mopping-up of excess liquidity in the economy.

He also abolished the exchange control regime, spruced up the Central Bank Act and the Banking Act. The minimum paid-up capital for banks was also raised.

Some 11 “political” banks that had been conduits for channelling the additional printed cash into the system, were shut down during his eight-year term. He then placed a moratorium on the licensing of new banks.

Policy analyst Robert Shaw, writing for the Daily Nation, noted that, thanks to Cheserem’s toughness and resolve, the malpractices and corruption of the early 1990s never recurred in the run-up to the 1997 elections.

Gitau Warigi, a columnist with the Daily Nation at the time, said while some people saw Mr Cheserem as “a lily above the filth and corruption of so many establishment hustlers, he was not necessarily without blemish.”

According to Warigi, Cheserem was not a good manager and refused to delegate.

He could also be “petty,” even asking security staff to record, for his attention, the exact time in the morning every day senior and junior employees reported to work. It is something Cheserem touched on during the Goldenburg inquest in 2004. His perceived highhandedness, he said, was due to the indiscipline he found at CBK.

“You would find staff taking tea at 10 o’clock, the ladies would go and make their hair,” said Cheserem, who later became the first chair of the Commission of Revenue Allocation.

“We had to be strict. We even put cameras so that we could see everybody working,” he added noting that there was a lot of dirt at CBK.

“The place would be clean and people would come to work early in the morning and close at 6 o’clock in the evening,” said Cheserem.

But it was his obsession with stopping the blistering rate of increase in prices of goods and services (inflation rate), which at some point hit a high of 51 per cent, that might have been his undoing.

Where Kotut’s money-printing excesses resulted in hyperinflation, Cheserem’s attempt to mop up the excess liquidity by selling Treasury Bills - short-term government paper - resulted in high interest rates. By the time he left office, the cost of credit was beyond the reach of ordinary Kenyans, in what was attributed to the high interest rate CBK offered for the various government securities.  

No wonder it was during his time that a Bill to control interest rates, known as Donde Bill, was formulated. It became very popular among the public.

Once mopping up of excess liquidity was done in 1997, Bretton Woods institutions, especially the International Monetary Fund stopped lending to Kenya, citing corruption.

This forced the government to issue Treasury Bills, a situation that saw a huge accumulation in domestic debt.

Mr Shaw noted that Cheserem, who was obsessed with inflation at the expense of interest rate was, however, not a good listener and is alleged to have harangued people who offered advice contrary to his “fixed perception.”

According to Shaw, CBK’s role in the banking sector during Cheserem’s term was hands-off.

He is blamed for leaving banks with high nonperforming loans (NPLs) - loans that have not been serviced for more than three months.

But the high NPLs were rampant in government-linked lenders, including KCB and the National Bank of Kenya.

Cheserem himself blamed this on the continued lingering of the government in the management of the two banks, noting that other banks where the government had little control had been able to keep down their bad loans.

The Treasury-Bill rate at some point hit 72 per cent. The shilling also gained during Cheserem’s tenure.

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