New Zealand’s election is scheduled to be held on 23 Sep 2017.
However, the central bank’s term is getting over on 26 Sep 2017 as well. This is of immediate interest to those studying political economy of central banking. After all, central banks are always blamed to be favoring either incumbent or opposition government. And to have the tenure of head of central bank clash with election dates is a pot boiler.
The best way to do handle the situation is to either give the current incumbent another term or extend the term of the chief by a few months till the political cycle is over.
What becomes interesting in NZ case is that the current chief Graeme Wheeler is not interested in any extension whatsoever. Thus, the government has announced the current Deputy Grant Spencer as the Acting Governor for 6 months.
Finance Minister Steven Joyce will appoint current Deputy Reserve Bank Governor Grant Spencer as the Acting Governor of the Bank for six months, following the expiry of current Governor Graeme Wheeler’s term on September 26 this year.
“Mr Wheeler’s term as Governor expires on September 26, three days after the general election, and he has decided not to seek reappointment,” Mr Joyce says. “Following advice from the Cabinet Office and consultation with Cabinet, I have decided that the most appropriate course of action would be to appoint an acting Governor for a six month period to cover the post-election caretaker period. This will give the next Government time to make a decision on the appointment of a permanent Governor for the next five year term.
“I have decided to appoint Mr Spencer as acting Governor from 27 September 2017 to 26 March 2018, on the advice of the Reserve Bank Board of Directors. The Government is pleased to have someone of his calibre to move into the role. He is a highly experienced member of the Bank’s Leadership team who will provide stability and continuity through this caretaker period prior to the appointment of the new Governor.”
Mr Joyce and Mr Spencer have agreed that there will be no change to the Policy Targets Agreement for the period Mr Spencer will be acting Governor.
Mr Spencer has advised the Government that he won’t be applying for the permanent role, and intends to retire following his period as acting Governor.
The Bank has had one previous acting Governor. Former Deputy Governor Rod Carr was appointed in an acting capacity for the pre-election and caretaker period around the 2002 General election, following the resignation of Governor Brash.
Mr Joyce thanked Governor Wheeler for his service to the Bank.
“The Governor has performed his role calmly and expertly during a highly unusual period for the world economy. I thank him for his service up until now and for the remainder of his term as Governor,” Mr Joyce says.
Croaking Cassandra, a blog on NZ economy wonders about the proposal:
But there are other unanswered questions. For example, is this a solution envisaged by the Act? The only previous appointment of an Acting Governor was when Don Brash resigned to go into politics, and Rod Carr was appointed as acting Governor while the selection process for a permanent successor took place. There is a clear need for acting Governor provisions in such cases – Governor can resign, die, or otherwise become incapacitated (and can even be removed for cause by the Minster).
But here is the relevant statutory provision (section 48)
If the office of Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint—
(a) a director of the Bank; or
(b) an officer of the Bank; or
(c) any other person—
to act as Governor for a period not exceeding 6 months or for the remainder of the Governor’s term, whichever is less.
As I have read that section, it envisages an acting Governor to complete a Governor’s term. not to provide a temporary Governor when it is inconvenient to appoint a permanent one.
That interpretation seems consistent with two other aspects of the Act. First, Governors must be appointed for an initial term of five years (although subsequent extensions can be for shorter terms). Parliament made that choice deliberately, presumably to help emphasise that the Governor was to operate at arms-length from the government. If, by contrast, an acting Governor could keep on being appointed for terms of six months at a time, it would allow the intent of the Act, operational autonomy, to be eroded if the government determined on such an approach, without coming back to Parliament to amend the law.
And second, the PTA provisions of the Act clearly tie in to the fixed term appointment of a Governor – and in that context an acting Governor filling in for an unexpected vacancy (as Rod Carr was in 2002) simply carries on with the PTA the substantive Governor had had in place. There is no provision in the Act for a PTA with an acting Governor – and the existing PTA is personal to Wheeler, and expires with his term in September this year.
The key lesson is need to rethink through the central bank act:
More generally, it highlights again the desirability of a more throughgoing review of the governance provisions of the Reserve Bank Act. That should not be a particularly partisan issue – more like an opportunity for some sensible reflections and revisions in light of 27 years experience with the current framework, changes in the role of the Bank, changes in the governance of other core government agencies, and changes in the understanding of how mechanically (or not) monetary policy can be run (and monitored).
We in India are also waking up to the need to thoroughly understand the central bank act. There are just so many ways Governments can interpret the loopholes in the Act to serve their interests…