Wathra vs Rajan – comparing two central bankers

New SBP governor lacks central banking experience, may find it hard to deal with IMF.

ISLAMABAD: Ashraf Mahmood Wathra is perhaps the only governor of the State Bank of Pakistan (SBP) whose hiring has sparked a debate since day one.

Last week, the federal government announced his appointment for a period of three years, which immediately led experts to question Wathra’s central banking experience and that too at a time when the SBP’s autonomy is also under intense scrutiny.

In an article published on May 3 in The News, former SBP governor Dr Muhammad Yaqoob summed up the issue by saying, “The State Bank of Pakistan (SBP) has been handed over to a governor and a deputy governor whose academic training is not even remotely related to monetary economics and central banking functions. Moreover, their work experience has been confined to retail commercial banking, which is of no use or relevance to central banking.”

Yaqoob further writes, “These appointments, based on political expediency and personal loyalty rather than professional competence and personal integrity, can enable the rulers to exploit national financial resources without SBP’s hindrance and are hurtful for institution-building and macroeconomic management.

“Imagine what would happen to the defence of the country if a poorly trained head of a private security company is appointed chief of the army staff.”

There was a perception that Finance Minister Ishaq Dar would appoint a weak governor who would obey his orders like any grade-20 officer of the Ministry of Finance. One cannot question the intentions of Dar who is really working hard to steer the economy out of crisis. It is his style of governance to constitute a team of people who just implement what he says, without questioning the rationale.

Probably, it will be good to gauge what the SBP has lost after Wathra’s appointment by comparing him with the central bank governor of the neighbouring country. In September last year, the Indian government appointed Dr Raghuram Rajan as head of the Reserve Bank of India.

Rajan is the one who predicted the 2008 financial crisis, three years before it struck the world. In 2005, at a ceremony organised to honour Alan Greenspan, who was about to retire as chairman of the US Federal Reserve, Rajan delivered a controversial paper that was critical of the financial sector.

”Has financial development made the world riskier,” Rajan asked and argued that a disaster might loom.

The response to Rajan’s paper at the time was negative. However, following the 2008 financial crisis, his views came to be seen as prescient. He was extensively interviewed about the global crisis for the Academy Award winning documentary Inside Job.

Rajan has won many awards, mainly the Fischer Black Prize awarded by the American Finance Association for contributions to the theory and practice of finance by an economist under the age of 40.

He was awarded the fifth Deutsche Bank Prize for Financial Economics 2013 for his groundbreaking research work, which influenced financial and macroeconomic policies around the world.

He has a couple of books to his credit besides extensively writing for leading world journals. He co-authored a book “Saving Capitalism from the Capitalists and Fault Lines: How Hidden Fractures Still Threaten the World Economy”, published in 2010 and won the Financial Times and Goldman Sachs Business Book of the Year Award for 2010.

Rajan also served as chief economist at the International Monetary Fund (IMF) from October 2003 to December 2006.

No limited choice

It would be unfair to say that there was a dearth of people and the government had no choice but to appoint Wathra. Masood Ahmed, who is serving in the IMF at a senior position, could have been a suitable choice for the post.

The profile of Wathra gives nothing to cheer about, except for his experience in retail banking. He has 35 years of commercial and investment banking experience.

Prior to joining the SBP in March 2013, he had been serving in National Bank of Pakistan (NBP) as its senior executive vice president and group chief, credit management group, since October 2012. Before joining NBP, he worked in Habib Bank Limited from April 1999 to September 2012.

He has a Master’s in Business Administration and his experience is only restricted to participating in seminars, conferences and courses at home and abroad.

Wathra’s appointment may serve the government’s purpose but it will not be in the country’s interests. He will have to deal with people in international financial institutions, like the IMF, who have a rich experience in central bank affairs – an area where Wathra is a naive.

Published in The Express Tribune, May 5^th, 2014.

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