Blog: Finance Minister Xavier Duval usurps powers of Governor of Bank of Mauritius, Rundheersing Bheenick
« In many countries the world over, the central bank has been given the mandate to preserve price stability as its single or primary objective, and been granted autonomy from government to make sure that short-term political considerations do not interfere with achieving this objective. Accountability to the legislature and the public at large balance the central bank’s autonomy » (Paul Moser-Boehm)
Oxford-educated Macro-Economist Rundheersing Bheenick, former Finance Minister in a Labour Government, was appointed governor of the Bank of Mauritius in early 2007. It is no secret that there was a tug of war between the former Minister of Finance Rama Sithanen and Governor Bheenick in that the Minister’s part-time nominees to the Board of the Central Bank were sabotaging the Governor’s decisions wrongly arguing that the Board, like that of a private company, stood above the Governor who is the principal representative of the Bank under the Act. The Governor was vindicated by the Mauritian Supreme Court and by the Fact Finding Committee presided by former Chief Justice Sir Victor Glover.
PM Ramgoolam replaced Rama Sithanen, who was not selected as a Labour candidate at the 2010 general elections, with Pravind Jugnauth, leader of the MSM, his alliance partner with Xavier-Luc Duval, leader of the PMSD. As a result of the MedPoint scandal involving MSM Ministers, including Pravind Jugnauth, the MSM split from the government alliance and joined the ranks of the opposition in 2011. PM Ramgoolam then appointed Xavier-Luc Duval as Finance Minister. Rundheersing Bheenick was awarded the prestigious Financial Times’ Banker Magazine Award for the « Central Banker of the Year 2012 », Africa, a first in the Central Bank’s 45-year history, for having achieved price stability when the world has been in deep economic and financial turmoil since 2007.
Xavier-Luc Duval premature award
On the other hand, Xavier-Luc Duval, an Accountant by profession, quite unexpectedly, found himself awarded « African Minister of Finance 2012 » by the African Leadership Magazine when he has been Finance Minister for just around, if not less than, one year. Anyone versed in economic theory would know that no Finance Minister could win such an award in such a short space of time. The very nature of economic principles and business cycles prevents such assessment for any form of award based on achievements which could be ascribed directly to the policies of Xavier-Luc Duval as Minister of Finance. Perhaps such an award should have gone to the previous Minister of Finance Pravind Jugnauth, or even Rama Sithanen.
There is little doubt that Mr Duval has been empowered by such a premature award and felt that he could take on the veteran Governor of the Central Bank, Rundheersing Bheenick. Attacking the Governor’s monetary policy, Mr Duval alleges that the economy shrunk by 1% because of the Governor’s policy of a strong Mauritian currency. This shows how much of an ‘economist’ Mr Duval really is. Maybe he should study how a strong Deutschmark kept the German economy growing for decades.
The Governor opted for stability. Why should he intervene to devalue the Rupee? Had he done so, imports would have been more expensive; there is no evidence that tourism would have increased in the present global financial turmoil; balance of trade would have deteriorated and the impact on the economy would have been disastrous with panic selling of Rupees and with all its inflationary pressures which the Central Bank is supposed to keep under control.
By sending a letter to the banks stating that the Finance Ministry would purchase 100 million US$ within the next four months, Xavier-Luc Duval is without question, and for political considerations, usurping the role of the Governor of the Central Bank, as clearly pointed out by Paul Bérenger, Leader of the Opposition. Due to the bootstrap effect, this has caused US$ to appreciate immediately whether or not those US$100m are actually purchased by his ministry. No wonder, the Central Bank’s Governor is said to have described Mr Duval as a « joker ». Many would argue that it goes well above a joke, as his measures are a danger to the economy of the country and to the population. Millions of Rupees are being lost in the purchase of an appreciated US$ directly due to Mr Duval’s irresponsibility in writing to the banks. The African Leadership Magazine must regret its decision to have made him such a premature award.
While the government should highlight the importance of cooperation between the government (via its Finance Minister) and the Governor of the Central Bank for the proper management of the economy, it cannot allow its Minister either to undermine the independence of the Bank of Mauritius or to usurp its powers.