Monday, December 05, 2016

Mr Njoroge's three-box tango

"Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity."
Honestly, I have no idea what all that means. What I do know is that it is part of the mandate of the Central Bank of Kenya as set out in section 4 of the Central bank of Kenya Act, chapter 491 of the laws of Kenya. But to be honest, do you really care what "monetary policy" really means? Do you care how many billions or trillions of shillings are in circulation in the market at any one time? Your answer is most probably, "No" and so you don't understand why Patrick Njoroge, the governor of the Central Bank is being hounded left, right and centre by unseen forces (also known as "cartels" in the political patois of the year).

Mr Njoroge is in these forces' crosshairs for taking the role of the Central Bank to "foster the liquidity, solvency and proper functioning of a stable market-based financial system" set out in sections 4(2) and 38 of the Central Bank of Kenya Act seriously. These sections give the Central Bank the power to take over the management of commercial banks if those banks become a threat to the liquidity, solvency or proper functioning of the financial system. But some commercial banks are sacred cows, protected from on political high and these are the forces that are believed to be striking back at Mr Njoroge.

I have another theory: Mr Njoroge, in the absence of a fully constituted board of directors, hasn't necessarily been a bull in a china shop as much as a stick-in-the-mud stickler for statutory and regulatory procedure in the awarding of tenders and the like. One of my not-so-obvious obsessive compulsions is the need, whenever I deal in currency, to keep brand new bills in my billfold and if you're like me, you will have noticed that since Mr Njoroge was appointed as governor, there are fewer and fewer brand new bills in circulations. In fact it was only last month that new bills were injected into the financial system and I can't help but wonder if it was because Mr Njoroge and his fidelity to statutory and regulatory provisions wouldn't grant a tender for the printing of new currency.

Kenya's currency can only be issued with the authority of the Central Bank; it is not up to De La Rue, the manufacturers of our currency, who can determine when and in what quantities currency shall be printed. That is the exclusive preserve of the Central Bank (section 22 of the Central Bank of Kenya Act), which not the President, the Cabinet Secretary for the National Treasury or parliamentarians can interfere in if the governor turns out to be a man with a backbone made of sufficiently stiffer material than the usual minestrone. Mr Njoroge has proven to be just such a governor and my phobias may have received a jolt from his refusal to kow-tow to the so-called whims and demands of the "cartels".

For ten years, the question of awarding De La Rue a new contract to print currency has been hanging fire. This new contract has been challenged and even became the subject of a Parliamentary Accounts Committee inquiry in which the then Finance Minister and former governor were adversely mentioned. It is now Mr Njoroge's turn in the hot seat. While the reason for his discomfiture might publicly be the closure of three banks, I think that it is the currency-printing contract that has invited faceless cartels to target him with accusations of abuse of office and similar things.

De La Rue's facilities in Ruaraka are classified as a protected area and all that the phrase entails including classification of all information relating to the facilities such as the currency-printing contract. This invites the traditional Kenyan rent-seeking in anything "security-related" which the currency contract will be made to fall under. This also means restricted tendering or single-sourcing of contractors. Mr Njoroge is likely the stumbling block when it comes to this contract. The closed banks are just the smokescreen; the cartels' true bugbear is the currency contract. As is the case with every dodgy deal since Goldenberg, sooner or later, the information will leak and the cartels' fronts will no longer be secret. Whether Mr Njoroge survives will be up to him and his surefootedness. He should bear this adage in mind, "To dance with the devil, one must know the steps."

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