Genie out of the bottle


According to Nobel laureate Joseph Stiglitz, the 2007 financial crisis hit countries with more independent central banks (Europe and the US) way, way profoundly than those with more subservient institutions (China, India and Brazil). And he is not alone. Lately, politicians and financial experts are coming into the open with reservations about irresponsible monetary policies. However, Pakistan is setting its teeth to let State Bank run amok with whatever policies and practises, its executive board deems appropriate.
The recent cabinet approval of an amendment in the SBP Act refers to sweeping powers that would literally free the bank from any official dictation regarding monetary and exchange rate policies. To no one’s surprise, the proposed changes have led to a raucous debate between those for and against the creation of an ultimate financial viceroy.
First and foremost are the apprehensions regarding the timing of this greater independence. Though an IMF’s precondition, the autonomy call has long been played out. Following the romanticised ideal of the European Union, PM Moeen Qureshi’s 1993 reforms incorporated the so-called central bank independence into the monetary policy. In essence, however, there existed no such thing as an independent central bank for it was the creature of the state that owned it. While previous Fund programmes have repeatedly asked for SBP’s autonomy, but somehow, some loophole was always used to avert the fiscal cliff. Why then was this time any different? Some quarters are busy harping on the Senate elections being used as a shrewd episode to hastily discuss crucial legislation. How could the house be expected to lend an ear to the particulars of the amendment act when nearly all its members were trying to get their hands on votes? The credit for such fleeting deliberations goes to the strategic placement of people currying favours for the powers that be. Those at sixes and sevens argue that once approved by the Senate, the SBP would be free from any form of accountability. There remain no qualms about the bank going out of its way to secure the previous administration’s goals. When ordered to maintain the exchange rate during the PML-N’s tenure, the national bank spent billions to keep the market steady. No one batted an eyelid over the looming disastrous consequences for the country’s exports and foreign exchange reserves. Numerous instances of central bankers sent packing or pressure from Islamabad to change official reports are no welcoming signs either. But, under no circumstances, can an under-developed country gain from a key pillar enjoying carte blanche. A parliament not allowed to call in SBP’s governor for questioning when it can hold the country’s prime minister to account is, plainly put, a recipe for disaster. Isn’t it ironic that watchdog bodies can cast a stone at our president, but the bank’s senior executive staff enjoys a blanket immunity?