The politicization of financial regulation

Over the past two years or so, the Bank of Ghana has been busier than ever with regards to cleaning up the severe financial fragility of the country’s financial intermediation industry which had hitherto been left to fester under the carpet. The first, a biggest part of the task, the recapitalization of the universal banking industry has been more or less successfully concluded with Ghana now having fewer, but stronger and better managed banks.

However, some of the initiatives deployed to achieve this have left the central bank open to accusations of political bias. But while these are largely uncharitable, they are basically the result of the posture of the BoG’s own, recently installed, incumbent executive management.

The manner in which the current top tier management of the BoG came into office – two of the top three executives were appointed by government getting rid of their predecessors, themselves appointed by the previous administration, before the end of their contracts and at high cost to the state – smacked of political driven decision making. And since their appointment, the executive management have repeatedly tied their bold, and direly needed reforms of the banking sector to lapses by their predecessors.

From there, the jump to linking those shortcomings to the previous government as a whole has been a short and inevitable one, prompting a response from the previous political administration. The ultimate result of all this has been the deep politicization of the central bank by both the political class and the public commentators who feed off them.

Not only have both major political parties sought to use the implementation of financial intermediation reform and its results to score political points against each other; the losers in those reforms have been given the opportunity to claim political victimization, rather than the bad behavior they have been accused of and which the BoG has acted on.

Instructively, the media has played a key role in this unsavory outcome, giving its space and airtime to politicians, rather than financial analysts, to pass judgement on the BoG’s actions.

All this has brought the BoG into unnecessary and largely undeserved disrepute. Importantly even where this disrepute is deserved, it is certainly still undesirable; It is for good reason the BoG is given its independence from government by law.

Instructively, now that the BoG has been labelled a political institution by various stakeholders and interest groups, it has become fair game for all sorts of criticism, as it is now seen as a legitimate target for those who seek to criticize government itself.  This is already having severe consequences which indeed stand to worsen going forward.

For instance, the issue of how to tackle the situation with Menzgold and the huge investments made by its customers and which are now in jeopardy, has taken a back seat to the issue of which political party facilitated what has emerged as the biggest financial intermediation scam against the general public in Ghana’s history.

The cat has to be put back in the bag. If it is not then going forward, the regulation of financial intermediation, which is supposed to be completely non-political will be seen through the distorted lenses of partisan politics. The situation with regards monetary policy, which by its nature is more easily seen as politically motivated, will become completely so, in complete contradiction to the BoG’s legally instituted independence from government.

There is therefore the urgent need for all stakeholders, who indeed should know better, to desist from dragging the BoG into their politicking. Similarly, the central bank’s executive management needs to go about its business without making statements that can be interpreted to imply taking a political stance.

The BoG must be seen as the central bank that it is, rather than as a political institution.