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Emerging MarketsAfrica

EM leaders bullying central bank governors are harming their countries


Political interference in central bank business is rarely a smart move, especially for emerging market countries trying to win the respect of international markets. But it’s an even more reckless endeavour in the midst of a global crisis, especially for a debt-ridden country like Zambia.

Without giving an official reason, Zambian president Edgar Lungu fired central bank governor Denny Kalyalya over the weekend. The sacking of the respected former World Bank employee elicited harsh responses from both analysts and politicians.

South African finance minister Tito Mboweni tweeted a fiery criticism of the saga: “Presidents in Africa must stop this nonsense of waking up in the morning and fire a central bank governor!”

Although he was later given a talking to by his president, Cyril Ramaphosa, and deleted the tweets, Mboweni was simply saying what many emerging market watchers were thinking.

For any developing country, proving the sophistication of your institutions should be a key priority. After all, it is an important thing investors and rating agencies look for when assessing a country’s credit quality.

But that responsibility should be even more pronounced in times of crisis. The International Monetary Fund has made central bank independence a prerequisite for many governments — including Zambia’s — seeking to secure emergency financing. 

Zambia is also in the process of restructuring its bonds, which adds to its woes amid a deeply declining currency. Immediately after the sacking, both Zambia’s bonds and currency fell sharply. 

But many emerging market leaders’ policies towards central banking is ”my way or the highway”.

Intense pressure to cut interest rates, print more cash and, ultimately, toe the party line have led to many reformist, level-headed and progressive central bankers being chased from their offices.

When Ukraine’s central bank governor Yakiv Smolii resigned on August 1, blaming systematic political pressure, bankers, investors and analysts alike were outraged. 

Disagreements with the government on monetary policy had added to the strain on Smolii as he tried to keep oligarch Ihor Kolomoisky from winning back control of the nationalised Privatbank, which had been wrested from him amid allegations of corruption.

“Let it be a warning for attempts to undermine institutional independence of the central bank,” he tweeted.

Although comedian-turned-president Volodymyr Zelensky appointed a replacement weeks later, and in doing so brought a failed sovereign bond issue back to market, analysts remained highly critical.

One economist compared Smolii’s replacement, Kyrylo Shevchenko, to former Soviet ruler Leonid Brezhnev after an introductory investor call, calling the debacle an “unmitigated failure”.

Smolii’s resignation, according to the economist, had “killed the organisation” and other reformist central bank employees had left. Just a week later, the deputy governor resigned too.

And the list of politically induced central bank blunders in emerging markets goes on.

Turkish governors have had a particularly difficult run in recent years, facing browbeating from the unrelenting Recep Tayyip Erdoğan. Last July, the president fired the internationally respected governor Murat Çetinkaya, apparently for refusing to accept Erdoğan’s plan to cut interest rates rapidly.

Political interference and obstruction in central bank business is rife across emerging markets, many of which lack the sophistication institutions in developed markets benefit from. 

Though forcing out an awkward governor and substituting him or her with an accomplice may work for reckless leaders in the short term, it is a disastrous long-term approach for any government wanting to boost its standing in the international sphere. 

As the saying goes, a reputation takes a lifetime to build and only a second to destroy.