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Governor on board

Professor Wadan Narsey
Saturday, December 02, 2017

AT the recent annual general meeting of the Fiji Sugar Corporation (FSC), Fiji Labour Party leader Mahendra Chaudhry legitimately questioned the appointment of the Reserve Bank of Fiji Governor, Ariff Ali, to boards of the FSC and Sugar Cane Growers' Fund.

RBF governor

and FSC board

Mr Chaudhry correctly commented that: "The RBF has an oversight and supervisory role. It must not get itself directly involved in the affairs of corporate entities or financial organisations. It is just not ethical."

But not only is the RBF a "supervisory" and "regulatory" body for all financial institutions in Fiji (including the growers' fund), it is also tasked with exchange rate policy that can help or harm the FSC and the Sugar Cane Growers on whose boards he now sits as well as being a commentator on government loan guarantee policies towards bodies like FSC.

Whose interests does the governor serve on these other boards when there is a conflict of interest?

Why indeed does the RBF governor accept an appointment by a minister of the Government of the day when such appointments make him personally vulnerable to many conflicts of interest?

RBF governor

About 15 years ago, I had pointed out (The Fiji Times March 12, 2002 "Funny business for the Govt") the many conflicts of interest the then RBF governor, Savenaca Narube, faced because of his chairmanship of the FNPF and also of the board of the private telecommunications monopoly, FINTEL.

The RBF is virtually the only autonomous and independent body that has some degree of "oversight" on government policy, not just of the usual ones of budget deficits, public debt and government guarantees, but also microeconomic policies such as the regulation of monopolies in the public interest.

The RBF may legitimately and ought to constructively criticise the Government of the day if the latter was thought to be unwisely strengthening a private exploitative monopoly (as FINTEL was then arguably doing) or irresponsibly increasing public liability through government guarantees.

But then, how can the RBF criticise a board of which the governor himself is a member?

The RBF governor clearly faces a conflict of interest with the FSC and canegrowers' fund which it is supposed to regulate.

Not too long ago, in contrast to commercial banks, the RBF lent a large sum of money to FSC, which was to all intents and purposes financially insolvent, had it not been for government guarantees and subsidies.

Should either or both of these entities not perform as well as expected, board members can and must be held accountable by taxpayers who supposedly own majority shares in FSC, and the farmers who theoretically own the canegrowers' fund.

What can the RBF governor say then to possible criticism from the public that board members (including himself) did not perform as well as they should have?

What can the RBF Governor say if these entities want to apply to RBF for more funding?

What can the governor of the RBF say if these entities continue to apply to Government for a continuation of government guarantees and subsidies (at taxpayers' expense) perhaps beyond some optimal point (which may indeed have been reached long ago)?

What will be the governor's responsibility as a board member of the FSC and the canegrowers' fund?

As RBF governor, will he then be judging his own performance as a board member of the FSC and canegrowers' fund?

There are even more "conflict of interest" headaches for the RBF governor relating to Fiji's exchange rate.

RBF governor and exchange rates

Export industries like the sugar industry (including the FSC) can be helped considerably if the Fiji dollar is devalued or depreciated thereby increasing the sugar industry's earnings in Fiji dollars; conversely, the sugar industry can be harmed considerably if the Fiji dollar is revalued or appreciated thereby reducing the Fiji dollar value of their export earnings.

Whether it will materially help the industry or not, nevertheless, one of the policy options the FSC and canegrowers fund boards can clearly advocate for is the devaluation or depreciation of the Fiji dollar to help FSC and cane growers.

But the Governor of the RBF is central to any decision to devalue or revalue the Fiji dollar.

What exactly will be his role as a board member of the canegrowers' fund, should there be any discussion of policy on Fiji's exchange rates?

The Governor may reply: "I excuse myself from these discussions".

But I remind you of the cliche from another field "justice must not only be done, but seen to be done".

There should be no hint of suspicion that the RBF governor may be influenced, however little, by his membership of another board, and vice versa.

Does the Governor

have nothing better to do

The RBF has the sacred responsibility of safeguarding the role of Fiji's money as means of payment and store of value, and have regulatory oversight of the many financial institutions that operate in Fiji — banks, insurance companies and other credit institutions, including hire purchase companies.

The RBF already faces numerous challenges which urgently need tackling, even if there is little hope of success because of the power of the corporate bodies in Fiji.

Why have savers been losing out for decades because the interest rates on their deposits are way less than the annual rate of inflation?

Why is it that Fiji's savers, on whose savings the entire banking business is based, are the only ones losing money every year, while the bankers and borrowers laugh all the way to the bank?

Is there any scope for reducing the interest rate gap between lending rates and deposit rates, as previous RBF governor Sada Reddy boldly set out to do?

Should there be better guidelines for the lending mix of banks and credit companies, for instance making sure that the rural sector not horribly deprived of credit, forcing them to avaricious money lenders even worse than banks?

Are the insurance premiums and compensation policies fair to the clients?

Is the RBF honest and hard-hitting in its assessment of the taxation, expenditure, and borrowing policies of the Government of the day, or is it merely "talking up" government's economic performance in shady growth rates?

The list goes on.

So why does the RBF governor waste his time sitting on public enterprise boards with possible conflicts of interest with his own primary role as governor of the RBF?

Can he not request the minister to find someone else, perhaps one of the governor's deputies or technical people?

Could he even dare to ask as a governor of RBF should: "Sir, is it healthy for Fiji that a few people have multiple board memberships with inherent conflicts of interest?"

That requires another article.

* The views expressed are the author's and not of this newspaper.

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