Post by AGHA ZOHAIB KHAN on Jul 17, 2011 4:09:25 GMT -5
THE third State Bank governor in three years, Shahid Kardar is, as of the writing of this piece, waiting for the president to approve his resignation. At a time when the economy is plagued by low growth, double-digit inflation and high public debt and is on the verge of losing IMF funding, a new face might once again have to be found to take over the reins of Pakistan’s monetary policy. There has been much speculation about the reasons behind Mr Kardar’s decision, some of it unfounded. But one issue that does appear to be at stake is the central bank’s autonomy. While past governments and State Bank governors have also struggled to strike a balance on the matter, direct interference from the top now appears to be turning the tussle into a failed relationship. Over the last couple of years there had also been attempts to make legislative changes such as placing limits on the extent of government borrowing from the State Bank and constituting a committee independent of the board to make interest rate decisions. These were watered down once they arrived in parliament. And even with these changes, the composition of the bank’s board would have remained subject to government approval, a situation far from ideal for an institution tasked with setting the best possible monetary policy for the country regardless of the political concerns of the government of the day.
What hasn’t helped matters is the shoddy handling of the event. Rumours about Mr Kardar’s resignation have been swirling for several days now, and radio silence from official quarters has led to uncertainty. When it comes to financial markets, perception often creates reality. The selection of a fourth State Bank governor in the government’s third year in office will only further erode investor confidence in Pakistan by creating the impression that the current government is simply unable to strike a working relationship with the central bank. And even if Mr Kardar is persuaded to stay, the rumours that have circulated these last few days have created jitters that will not have assured investors or international lenders, who prefer a stable team of economic leaders to develop policy with.
The preferable outcome would be Mr Kardar somehow being persuaded to stay, with assurances that he will be allowed to execute monetary policy without unreasonable pressure from the highest levels of government and without having to sacrifice policy for political considerations. Either way, to ease concerns at home and abroad, the issue must be resolved and a public announcement made as soon as possible.
What hasn’t helped matters is the shoddy handling of the event. Rumours about Mr Kardar’s resignation have been swirling for several days now, and radio silence from official quarters has led to uncertainty. When it comes to financial markets, perception often creates reality. The selection of a fourth State Bank governor in the government’s third year in office will only further erode investor confidence in Pakistan by creating the impression that the current government is simply unable to strike a working relationship with the central bank. And even if Mr Kardar is persuaded to stay, the rumours that have circulated these last few days have created jitters that will not have assured investors or international lenders, who prefer a stable team of economic leaders to develop policy with.
The preferable outcome would be Mr Kardar somehow being persuaded to stay, with assurances that he will be allowed to execute monetary policy without unreasonable pressure from the highest levels of government and without having to sacrifice policy for political considerations. Either way, to ease concerns at home and abroad, the issue must be resolved and a public announcement made as soon as possible.