Parliament has debated the report of the Parliamentary Select Committee that investigated last year’s rapid decline of the shilling against major world currencies with passion.
Certainly it is an issue of immense public interest, given the impact this fall had on livelihoods and living standards in the second half of last year. The questionable depreciation, particularly against the dollar with which the country pays for most of its imports and in which it earns much of its foreign revenue, caused untold misery to Kenyans.
Against this backdrop, the interest MPs have demonstrated in the debate is laudable. In particular numbers swelled in the House during a vote on recommendations touching on the Central Bank Governor Njuguna Ndung’u, who was the subject of acrimonious exchanges. Eventually MPs spared him parliamentary censure after they voted to delete a section on monetary policy that contained recommendations hostile to the governor.
It would be unfortunate if members, who seemed galvanised along ethnic lines and for ethnic reasons, were to show less interest in subsequent proceedings. The report contains a raft of valuable recommendations that should be adopted to prevent action that caused pain for many Kenyans.
Specifically, the MPs’ team noted that the current interest rates of slightly over 30 per cent charged by banks are unrealistic, harmful and untenable. The committee recommends the Government, CBK and financial market players should take immediate steps to reduce the interest rate to affordable levels within three months of adoption of the report by the House.
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Amendments to the relevant laws, measures to step up supervisory oversight of financial institutions and improve fiscal policy are among proposals to address policy and institutional weaknesses facilitating the crisis.
The committee underscored the need to reform the system even after the shilling had recovered. It noted outside factors that stoked the crisis such as the wide current account deficit, Euro crisis, large import bill of non-essential commodities and the Arab Spring still prevailed.
To discourage irregular banking practices, the committee proposed the CBK Act and the Banking Act be amended to impose harsher penalty than the Sh1 million fine. A stronger deterrent, a penalty of 50 per cent of the amount involved or Sh20 million, whichever is greater, is recommended.
A proposal to review the CBK Act to provide that the CBK Governor appears on a quarterly basis before a relevant Parliamentary committee to expound on monetary policy and other actions on financial stability is suggested to improve oversight.
The report proposes an amendment to the CBK Act to exclude the Governor and the Deputy Governor from chairing the Board of Directors of CBK. The Board is expected to review their performance, a function MPs felt is compromised when they head the Board. The proposed changes include the appointment of the Governor and Deputy Governor in a transparent and competitive process.
The CBK is advised to maintain a coherent monetary policy at all times with a focus on price stability. The Central Bank maintained the low interest rate regime for far too long, which worsened the crisis. The report urges CBK to develop tools to efficiently monitor financial markets and conduct an internal audit of monetary operations and bank supervision with a view to rectifying the problem. Nonetheless, people must be held to account.
If the report is adopted the Ethics and Anti-Corruption Commission and the Auditor General’s office is required to carry out an independent forensic audit on transactions of the Discount Window and foreign exchange trading of banks.
As MPs mull all these proposals, they should keep in mind that the larger goal should be to offer stronger regulation for banks, by making sure the CBK and its governor can and are acting firmly on rogue behaviour. It would be a tragedy if, as with the financial crisis in the US, banks walk away from the crisis without censure and live to play by the same rules.