Wehby calls for major changes to be made at BOJ

Saturday, November 21, 2009 6:44 AM

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Alicia Roache roachea@jamaicaobserver.com

Friday, November 06, 2009

Don Wehby has called for major changes to be made to the operations of the Central Bank.

Wehby, former minister without portfolio in the Ministry of Finance and the Public Service has called for the separation of the role of the Chairman and Governor of the Bank of Jamaica (BOJ). He has said that this separation would be in line with "good corporate governance".

The call comes almost a week following the sacking of former governor Derick Latibeaudiere over what appears to be the terms of his contract and issues relating to how he was allowed to access loans from the central bank. During his 34-year tenure at the central bank, 13 of which he was governor, Latibeaudiere also acted as Chairman of the Board.

It has been suggested that between 2006 and 2008 the then governor secured loans amounting to $55.4 million at a five per cent interest rate. The auditor general questioned the transparency with which such loans were accessed after no evidence of board approval or any specific requirement for board or ministerial approval was obvious.

Wehby also called for an oversight committe to be established to monitor the policies of the central bank. He suggested that a "Monetary Policy Commitee to be established, similiar to the
one set up by Gordon Brown in 1997." "The control mechanisms should include decisions on interest rates, decisions on reserve requirements and currency market transactions," Wehby said during 'Cocktails and Conversations' held at the Hilton Kingston Hotel on Wednesday.

"Decisions by the Monetary Policy Committee must be based on the bank's objectives and thorough assessment of the current situation, the outlook for the economy, monetary issues and financial stability," Wehby said.

Wehby also recommends a nine-member committee: five from within the BOJ and the Ministry of Finance, and four independent members. "The committee should be chaired by the governor and the independent members should include some of the best economists," he said. "The minutes of these meetings should be published for transparency and predictability," he added. "These are serious times, therefore these reform programmes must be implemented as quickly as possible and the minister of finance should report to the nation on an ongoing basis regarding the process."

Following Latibeaudiere's departure, Prime Minister Bruce Golding issued a statement suggesting that the operations of the Bank would undergo significant reforms.

"In relation to the BoJ, it is timely for the Government to re-examine the governance structure of the bank. We are committed to the independence of the central bank and the clear separation of responsibility for monetary policy from fiscal policy. But it is also important that the Governor of the bank be held accountable and that the bank, itself, be held accountable. Much consideration has been given to this in the past and the report of the Daisy Coke Committee of 1994, which was presented to this House is still relevant. This re-examination will be pursued as a matter of priority and the minister will engage the House in determining what changes are to be instituted," Golding said in a release.

"With the appointment of Mr. Brian Wynter as the new Governor, the leadership of the Bank of Jamaica is in safe and capable hands," Golding said.

Nonetheless Wehby, who returned to Grace Kennedy as Chief Operating Officer after two years in the public service, pointed to a six-point Fiscal and Debt Sustainability Reform programme as a means to "revitalise and boost the economy".

"This comprehensive and highly effective programme has the following components," Wehby said:

. Controlling public sector balances and debt

. rationalising public bodies

. Improving central government financial management and budget processes

. Increasing revenue collection (tax reform)

. Increasing growth and competitiveness

. managing the public sector wage bill/ modernisation of the public sector

"Public sector debt accounts for a hugh portion of the overall fiscal deficit, which is generated outside the budget. Therefore, measures have to be implemented to increase transparency over public sector accounts to improve control of balances and debt," Wehby suggested.

He also maintained that tax reform is an imperative to ensure equity in collection at all levels. "Our tax system is very complex and inequitable. Therefore we need to simplify the system and strengthen the administration," he said.

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