State Bank of Pakistan (SBP) acting governor Ashraf Wathra, who is lobbying hard to become permanent head, said that state organs can cooperate in deciding the exchange rate, indicating his no-objection to a strong federal government role in running affairs of the central bank.
“In many issues the state organs cooperate with each other,” said Wathra while responding to a question regarding the SBP’s position on micromanagement of exchange rate by the Ministry of Finance. Wathra was speaking to journalists after attending a meeting of the Senate Standing Committee on Finance.
The stance taken by Wathra is not only against spirit of law but also against the International Monetary Fund’s desire to see the bank fully independent from the influence of the federal government.
When asked whether the SBP Act of 1956 permits the Ministry of Finance to determine the exchange rate, Wathra avoided the question and left the venue.
In theory, Pakistan practises market-determined exchange rate but, practically, the SBP and Ministry of Finance decide the rate of rupee-dollar parity.
For many years, the Ministry of Finance has been micromanaging the SBP, highlighting the weakening of a state institution whose independence is largely curtailed by giving preference to loyalty over professionalism while picking its head, according to former central bankers.
The government is looking for a permanent head of the SBP after former governor Yaseen Anwar resigned in January this year. Under the law, the government has to appoint a permanent head within three months, a deadline which expires on April 30.
The names surfaced so far show that the government is inclined to give preference to loyalty. Wathra – a career banker was appointed as deputy governor SBP by the PPP government during its final days. He is lobbying hard for becoming the permanent governor, according to sources in the Ministry of Finance.
“The government has not yet decided who will be the next governor”, said Finance Minister Ishaq Dar while talking to The Express Tribune.
In a statement that also establishes the Ministry of Finance’s dominant role in the SBP, the Finance Secretary Waqar Masood told the standing committee that “exchange rate stability has been restored”. He further said that the government was also conscious of the fact that the appreciating rupee was now creating problems for exporters.
After the exporters created a hue and cry, in the last two days the rupee has started depreciating again but remains within the government’s desired level.
Wathra admitted in the meeting that the IMF was not happy with the lack of autonomy that the SBP currently has. “The IMF is not satisfied with the proposed amendments in the SBP Act of 1956 and wanted more autonomy for the SBP,” said Wathra while responding to a question raised by Committee Chairperson Senator Nasreen Jalil of MQM.
He said the federal government has already tabled the amended Bill in the Parliament, based on the “basic concept of the IMF” about the SBP autonomy. Wathra said further discussions about the IMF’s concerns will take place during upcoming Pak-IMF talks.
“The process of appointing the governor and deputy governor of the SBP should be transparent and the government’s representatives should not be appointed as head of the SBP,” suggested member standing committee Senator Haji Adil of ANP.
Political intervention in managing monetary and exchange rate affairs have in the past annoyed both the IMF and the SBP top management. The IMF has asked the federal government to surrender the overarching authority that has so far allowed it to keep all the SBP governors under its thumb.
Published in The Express Tribune, April 23rd, 2014.
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