By ALPHONCE SHIUNDU ashiundu@ke.nationmedia.com
Posted Tuesday, February 14 2012 at 22:30
Posted Tuesday, February 14 2012 at 22:30
IN SUMMARY
What the committee recommended:
- The Governor takes responsibility for allowing the sharp decline of the shilling.
- The Governor steps aside to pave the way for thorough investigations.
- The President constitute a tribunal to investigate the Governor’s conduct, incapability and incompetence to perform the functions of his office.
Central Bank of Kenya governor Njuguna Ndung’u’s job is on the line over last year’s collapse of the shilling.
A parliamentary committee recommended that Prof Ndung’u resign, accusing him of allowing banks to manipulate the currency to make super profits at the expense of millions of Kenyans.
“The committee finds the governor’s conduct and behaviour incompatible with the holder of the office of governor of the Central Bank of Kenya… (he) is squarely responsible for creating the opportunity for banks and individuals to make quick money through speculation and hoarding,” the MPs said in their report tabled in Parliament on Tuesday.
The shilling became the world’s worst performing currency, falling from a high of Sh84 to a low of Sh107 to the dollar late last year.
This led to a sharp increase in petroleum prices which in turn meant the cost of most basic commodities went up as well. (READ: Weak Kenya shilling wreaks havoc on consumers)
Failure to intervene
On Tuesday, the MPs accused Prof Ndung’u of failing to intervene on time to save the shilling as it fast depreciated, placing the economy in jeopardy.
The committee also recommended that Equity Bank chief executive officer James Mwangi should resign from his position on Vision 2030 Delivery Board, because of conflict of interest.
The position, together with that of Equity chairman Peter Munga’s doubling as National Oil Corporation chairman gives them insider information on future demands for foreign cash and trends, the committee said.
CFC Stanbic, Standard Chartered and Citi Bank were named as the banks that manipulated the shilling. (READ: Kenyan banks to blame for shilling fall)
“Information provided by the governor shows that the three top banks by September 2011 controlled 42.2% of total foreign assets in the banking system (approximately Sh174.5 billion).
"The governor reported that adequate explanations were provided by the banks during the visits.”
The committee recommended that the fine for banks involved in fiscal malpractice be raised from the current maximum of Sh1 million to, 50 per cent of the money made or a maximum of Sh20 million, whichever is greater.
Since Prof Ndung’u enjoys security of tenure, the committee recommended that President Kibaki should appoint a tribunal to investigate his “conduct, incapability and incompetence” regarding the way he handled the financial crisis.
But before even the President takes action, the governor should take responsibility for the rapid decline of the shilling “and step aside to pave way for investigations”. (READ: CBK policy error to blame for weak shilling, MPs told)
Mr Adan Keynan, the chairman of the parliamentary Committee on the Depreciation of the Shilling tabled the report with the recommendations in Parliament on Tuesday soon after the House resumed its sittings after a six-week break.
Prof Ndung’u’s sins to the economy, the MPs said, were that he “played down the gravity of the problem”.
The report accuses him of publicly stating that the regulator wasn’t going to intervene even as the financial markets ran amok and the shilling slid further, first slowly from a high of Sh84 to a low of Sh107 against the dollar in October last year.
The MPs also accused the governor of “being less candid” about the information he released to the public and that which he gave to the select committee.
“For instance, the governor claimed publicly that some banks, which he refused to name, were responsible for arbitrage and hoarding of foreign currencies,” the MPs noted in their report.
The lawmakers have also given the commercial banks and the monetary policy committee a three-month ultimatum to make sure that the interest rates are reduced from the current high levels.
Interest rates untenable
“The current interest rates of slightly over 30 per cent charged by banks are unrealistic, harmful and untenable,” the lawmakers noted in their report.
They say this is an oversight, because the governor too needs someone to supervise him and his activities at the helm of the crucial institution.The MPs have also proposed amendments to the law to ensure that the Central Bank governor and his deputy do not sit in the CBK Board of Management.
“The committee found that the CBK may have been over-enthusiastic about economic stimulus and also maintained the low interest rate regime for far too long, and therefore recommends that the CBK should maintain a coherent monetary policy at all times with a focus on price stability,” the MPs noted.
They thus have called for the CBK to make quarterly reports to the parliamentary Committee on Finance about its execution of monetary policies in the country and other issues to ensure the price stability of the shilling.
Shore up shilling
The lawmakers want mechanisms in place to ensure that the governor of the Central Bank and the rest of the management at the CBK can also be sanctioned or fined if they fail to act on time in fiscal matters.
The MPs have also proposed an amendment to have the director in charge of Bank Supervision join the monetary policy committee.
The measures that the Central Bank put in place to shore up the shilling against the dollar pressure are also part of the reason why Prof Ndung’u will have to take a bow out of the institution.
“The release of CBK circular to bypass the banking system and deal directly with buyers or sellers of foreign exchange, although reversed, was in complete disregard of the financial structures and could have opened opportunities for rationing of foreign exchange, occasioned parallel markets to thrive,” the MPs say in the report.
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