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Robust institutions require independence, protection to safeguard people’s rights

NEWS
By Luther Odhiambo | Oct 3rd 2017 | 3 min read
By Luther Odhiambo | October 3rd 2017
NEWS
Central Bank of Kenya Governor Patrick Njoroge

NAIROBI, KENYA: The Helen Suzman Foundation (“HSF” reminds me about what the Supreme Court has been subjected to. The “HSF” focuses on the values enshrined in the Constitution whose theme is that ‘Central to the freedoms conferred by the Constitution are checks and balances designed to guard against abuse of power.

These checks and balances arebacked by a division of functions between the Executive, Legislature and Judiciary. Within this framework are institutions, which need independence from day-to-day political pressures if they are to serve and protect the public.

The HSF maintains that promotion of liberal constitutional democracy is maintained by strong constitutional institutions. Robust institutions require  independence and protection to safeguard our rights. They include Parliament, Supreme Court and Central Bank of Kenya (CBK).

I worry about the independence of tomorrows Supreme Court but I am more worried whether CBK will be independent in tomorrow’s Kenya, maybe it is not even self-governing currently. Sooner or later, the politicians would attempt to bring CBK under their supervision to enforce policies that favour their interests.

The main role of the central bank is to contain inflation, specifically to protect the economy from election cycle now. In addition, CBK makes sure that the country enjoys the stable banking system. It creates and controls money through its monetary policy. This is in addition to regulation of individual bank activities.

Social objectives

Not much has been going on in our economy and evidence of this is in the revised GDP growth rate. CBK is awake to this. We require an independent central bank that helps the country achieve her economic and social objectives by independently managing the monetary policy.

We need a governor who can tell Parliament and the President that he is in command of monetary policy. We need a CBK boss who briefs us weekly or monthly about the economic health of Kenya; actual and forecasts on of unemployment, new jobs, interest rate, inflation and exchange rate.

CBK reports more historical data than forecast data, yet in financial markets and investment, the focus is about the future. It is like previously had governors failed to question State policies that led to deficit financing that induced inflation. Such governors were only interested in keeping their jobs. Whenever there are financial difficulties, governments tend to cross over from their fiscal and economic mandate into the monetary mandate. Where that happens then a nation ends up with printed money that is inflationary.

Central Bank is expected to come up with monetary approaches that address unemployment, through price stability. The independence must be from the President, politicians and financial institutions.

CBK independence is about its ability to set the monetary instruments independent of both the Government influence and other financial institution’s influence and to set the goals of monetary policy. A statement from Imperial Bank depositors requiring CBK to admit it was legally responsible for the its collapse does not auger well for the central bank’s independence. Lapse in supervision might imply compromised independence on the side of the bank of last resort.

The other issue that jeopardises CBK independence its bid to look for suitors for Imperial Bank  which might lead to cosy relationship between the two. The main objective of CBK is to formulate, and implement monetary policy directed to achieve maintain stability in the general level of prices; foster the liquidity; solvency and proper functioning of a stable market based financial system.

But the elephant in the room is the requirement that CBK shall support the economic policy of the government, including its objectives for growth and employment. The problem is, what does CBK do if the effective price stability it recommends an economic policy target of the government is at variance, and where does this place CBK independence?

In the US, board members are appointed on 14-year term and they cannot be removed from office. This is to delink it from seeking approval from the president and the Congress.

The writer teaches at University of Nairobi

 

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