Tuesday, March 1, 2011

Four more years for Prof Ndung’u at CBK

Imaginative thinking during the financial crisis and recession that followed earned CBK Governor Prof Njuguna Ndung’u high scores. Photo/FILE
Imaginative thinking during the financial crisis and recession that followed earned CBK Governor Prof Njuguna Ndung’u high scores. Photo/FILE 
By JUSTUS ONDARI jondari@ke.nationmedia.com LUKE MULUNDA lmulunda@ke.nationmedia.com Posted Monday, February 28 2011 at 14:11

Prof Njuguna Ndung’u, governor of the Central Bank of Kenya who got a second tenure on Friday, did not seem bothered as the clock ticked to the end of his first four-year term.
He still worked as if unaware of March 4, the date his contract lapses. He was in Meru to open a currency centre and talked bullishly about policy issues.
He has been given high grades by bankers and economists as well as policy makers for maintaining his cool and holding the economy stable through post-election violence and global recession.
Most see Prof Ndung’u as a conquering hero. In Nairobi and even at Bretton Woods, it would have been a surprise if President Kibaki had not appointed Mr Ndungu’u for a second term.
Prof Ndung’u’s appointment was announced through a Special Gazette Notice on Friday evening, calming frayed nerves over a leadership vacuum at Central Bank of Kenya and ending behind the scenes lobbying for the job. He will serve his second and last term till March 4, 2015.
Finance minister Uhuru Kenyatta was expected to give a ministerial statement on the governor position today in Parliament, which is likely to put up a strong case for him to avert controversies that have followed high-profile government appointments.
The ‘Grand’ blemish
And despite Ndungu’s credibility in financial circles, both he and the central bank as an institution have come under political fire from lawmakers over the handling of the Grand Regency sale to Libyan investors, who renamed it Laico Regency.
Fellow economists, however, heap praise on Prof Ndung’u for his bold actions and steady hand in pulling the economy out of its worst crisis since the 1980’s.
Tossing out the Central Bank standard playbook, he orchestrated a number of rescue programmes: low interest rates and low inflation among others.
There had been great public interest on whether or not he should be given another term. Although the new Constitution recognises CBK as one of the critical financial institutions, it does not specifically touch on the governor or his appointment.
“An Act of Parliament shall provide for the composition, powers, functions and operations of the Central Bank of Kenya,” is all Section 231 says.
There had been fears of a power vacuum and challenges facing the President to re-appoint Prof Ndung’u or name a new governor.
This is given by the fact that Deputy governor Dr Hezron Nyangito, whose four-year renewable term ends in September 2012, is recovering after being taken ill for months and the term of members of CBK board of directors expired by January this year.
The CBK board is made up of the governor and his deputy, the PS Treasury or his representative as a non-voting member and five non-executive members.
Members of the last board included PS Treasury Joseph Kinyua, CBK secretary Kennedy Abuga, Ms Agnes Wanjiru, Mr Nicolas Nesbitt and Ms Wanza Kioko whose terms expired between September and January.
But there is a strong argument that the board’s absence would not have prevented the President from re-appointing Prof Ndung’u or naming someone else as governor.
This is because, first, the new Constitution does not specifically touch on the governor and his appointment. “An Act of Parliament shall provide for the composition, powers, functions and operations of the Central Bank of Kenya,”says Section 231 of the new Constitution.
Secondly, while the Central Bank of Kenya Act Section 10 gives the board powers to review the performance of the governor, it does not expressly state that it should recommend a person or persons for the president to appoint them as CBK governor, deputy governor or director.
“The Governor, Deputy Governor and the directors …shall be appointed by the President and shall hold office for terms of four years each but shall be eligible for re-appointment,” Section 11 (2) of the CBK Act says. “Provided that no Governor, Deputy Governor or directors shall hold office for more than two terms,” it adds.

Many analysts rate Prof Ndung’u’s tenure at CBK favourably though they say the controversial sale of the Grand Regency is blemish on his good work.
They base their judgement on a set of macro-economic indicators. These include falling interest rates, stability of the Kenyan shilling against major foreign currencies, a single digit inflation rate and increased access to financial services among Kenyans, especially through mobile phone money transfer services.
By the end of 2005, Kenya had a total of 534 automated teller machines, but that had grown to 1,030 by last year. The number of small accountholders has shot up from 2.14 million to 12 million.
Prof Ndung’u has promoted mobile money transfers and banking. Last December, the mobile service riding on the back of the 18 million mobile subscribers stunned the market with a turnover of Sh76 billion.
Yet, while they concur that Mr Ndung’u deserved a new term, they differed on how he was re-appointed. This is because, while others rooted for a competitive recruitment, some felt President Kibaki did right by renewing his contract.
“It makes sense to make the position open and, being eligible, Prof Ndung’u should have applied so we live up to the spirit of the new constitution,” says former Mandera Central MP, Billow Kerrow, who says the Grand Regency is a bloat to an otherwise good work by the governor.
Prof Ndung’u was accused of rushing the sale of the hotel that recovered Sh1.2 billion that businessman Kamlesh Pattni owed the bank for nearly two decades.
But he rates the governor’s performance as generally satisfactory and top of his reasons is Mr Ndung’u’s continuous pressure on banks to lower the cost of lending. “My only worry is the wide interest rate spread, which is responsible for the crazy profits the bank are recording,” Mr Kerrow said.
Interest rate spread is the difference between the interest rate clients earn on deposits and what banks levy on loans. It’s a view shared by an economist at University of Nairobi, Dr Samuel Nyandemo, even as he praises the CBK governor’s work.
“Prof Ndung’u has performed relatively well in his four tenure but the position should have been competitively advertised so his appointment is not tarnished by controversies like the ones we have witnessed recently,” he said.
He is referring to the withdrawn President Kibaki’s appointments of the attorney-general, chief justice, director of public prosecutions and controller of budget.
Prof Ndung’u avoided publicly talking about his tenure and expectations. A request for an interview yielded only his first speech and aspirations when he was appointed in 2007. “We are in receipt of your queries on the governor’s achievements to date,” said a statement from CBK communications office. “To shed more light on that, please look through the attached information on the his top priorities when his term commenced.”
Among the priorities was to support national development goals under Vision 2030 economic blueprint and supporting business by maintaining a conducive macro and micro-economic environment.
“Effective monetary policy consistent with the development agenda,” he said then, “ensures that there is price stability, appropriate interest rate structure etc, to support economic activities.”
He pledged to support the business through appropriate interest rate structure, stable and predictable domestic price structure like the exchange rate.
“In this regard,” he added, “the CBK will require to be forward looking and proactive in order to guide and provide directions with regard to where the market, opportunities and policy support is moving to at all times.”
The jury is out on this because, analysts say, he has lived to his promise. That’s why many have no qualms with Prof Ndung’u’s re-appointment.
“If, as we all seem to accept, the man has done a good job, why waste time and resources in advertising the position instead of just giving him another four years?” said Dr Thomas Nzioki Kibua, who served as CBK Deputy governor for eight years.
Maintaining that Mr Ndung’u has delivered, the former executive director of the Institute of Policy Analysis and Research cautions against politics said he should have been subjected to competitive recruitment.
“If I was the appointing authority, I would do it again not only because Prof Ndung’u has done a good job, but also for the sake of stability, continuity and predictability in the management of our economy,” said Maragua MP and Parliament’s Budget Committee chairman, Elias Mbau.

Prof Ndung’u began as governor by meekly promising to maintain make CBK a stimulant of growth. He ended up facing the worst downturn since 2002 and changing central banking in ways that will reverberate for decades.
Imaginative thinking
He took office promising to follow in the footsteps of his predecessor, Andrew Mullei, and to bring greater transparency to a historically secretive institution.
But as a devastating financial crisis hit, he deployed daring policy manoeuvres never before attempted by central bankers in what seems to have been a successful effort to tame the impact of the political crisis and economic meltdown. Inflation has come down to below 10 per cent and interest rates hover between 10 and 13 per cent from a high of 17 per cent.
His imaginative thinking during the financial break-down and painful recession that followed – including the creation of the Monetary Policy Committee to advise on policy– earned him a respect that makes his reappointment seem unsurprising.

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