Governor suspended as economy slumps and finance minister implicated
The government suspended the central bank governor in a rare move.
Maha Prasad Adhikari, the governor of Nepal Rastra Bank, faced an automatic suspension on Friday following the government’s decision to form a panel to look into what it called accusations of leaking sensitive information over its decisions and failing to discharge its responsibilities effectively.
Sources said the government has formed a three-member inquiry committee headed by former Supreme Court Justice Purushottam Bhandari. The commission has one month to submit its report.
Govinda Pariyar, press chief for Prime Minister Sher Bahadur Deuba, confirmed to the Post that a three-member investigative committee had been formed, leading to Adhikari’s suspension.
Section 22 and its subsection 5 of the Nepalese Rastra Bank Act 2002 details the conditions that allow for the dismissal of the Governor, Deputy Governor and Central Bank Directors. They can be revoked if they fail to exercise due diligence, lack efficiency, harm the country’s banking and financial system, or are found to have acted dishonestly or with malicious intent. faith in any transaction related to the activities of the bank, among others. things, according to the law.
This is the second time a sitting governor has been suspended.
Adhikari told the Post that he had “been made aware of the formation” of the investigative committee.
“I don’t have any other information about the committee, or the reasons for forming the committee, for that matter,” Adhikari said.
With Adhikari suspended, Nilam Dhungana Timilsina, the deputy governor, was appointed acting governor.
Adhikari was appointed as the 17th Governor of Nepal on April 6, 2020, after Chiranjivi Nepal completed his five-year term on March 17.
Prior to that, Adhikari was Managing Director of Investment Board Nepal.
Adhikari’s suspension comes suddenly, as does an impeachment motion against Chief Justice Cholendra Shumsher Rana on March 13, raising questions whether the decision is guided by a political vendetta.
Adhikari is considered close to the main opposition party CPN-UML. It was during the tenure of UML Chairman KP Sharma Oli that he was brought in to lead the central bank from the Investment Board Nepal.
Following Deuba’s appointment as prime minister, Janardan Sharma, a leader of the CPN (Maoist Center), a key coalition partner in government, was appointed finance minister.
Party sources and insiders at Singha Durbar say Sharma and Adhikari were not on the best of terms.
Insiders said Adhikari was on the agenda at Thursday’s Cabinet meeting, which took a series of decisions, including recommending 20 people as ambassadors for various assignments.
Prior to the Cabinet meeting, Prime Minister Deuba had a discussion with Pushpa Maoist Center Chairman Kamal Dahal and CPN (Unified Socialist) Chairman Madhav Kumar Nepal, who are key coalition partners.
“Dahal and Nepal have expressed serious concerns over the state of the country’s economy, including the performance of Governor Adhikari and have requested the Prime Minister to take concrete action before the economy worsens,” said the Nepali Congress Minister.
According to the minister, the prime minister was actually not in favor of suspending Adhikari because he was fundamentally unhappy with the performance of finance minister Sharma.
“The Prime Minister was planning to consult with some senior economists for information on how to revive the economy,” the minister said. “But under pressure from Dahal and Nepal, the Prime Minister has instructed some ministers from the Nepalese Congress and the Maoist Center to make a proper decision on Adhikari.”
The minister said that the economy of the country was seriously discussed during the Cabinet meeting as well as during informal meetings of ministers.
Another minister said some ministers sat down for an informal meeting before the Cabinet meeting where Sharma explained how Adhikari was systematically destroying the economy.
Sharma also informed that investors were unhappy with the central bank’s current approach to dealing with the liquidity crunch, according to the minister.
But Sharma himself has come under fire in recent months for his failure to take action to fix the economy.
Several experts the Post has spoken to over the past few months have said that despite all economic indicators falling, Sharma, as finance minister, was completely irrelevant and oblivious to the impending crisis.
Adhikari’s suspension also follows recent controversy surrounding Sharma. According to Kantipur, the post sister newspaper, Sharma facilitated the release of “a few suspicious funds” belonging to a certain Prithvi Bahadur Shah.
Chiranjivi Nepal, Adhikari’s predecessor at the central bank, said the government’s decision “is not good”.
“Such a move by the government will not lift the morale of financial institutions at a time when the country’s economic indicators are not performing well,” Nepal told the Post.
In Nepal, the term of a governor is fixed at five years.
Earlier in August 2000, then Finance Minister Mahesh Acharya sacked then Governor Tilak Rawal without giving a reason and appointed Dipendra Purush Dhakal. Later, after the Supreme Court overturned the decision, reinstating Rawal, Acharya resigned as minister. Struggle between Acharya and Rawal resulted in a nasty episode.
In June 2007Governor Bijay Nath Bhattarai was suspended after the Abuse of Authority Investigation Commission filed a complaint with the Special Court accusing him of hiring KPMG Sri Lanka, a consultancy firm, to help improve the bank management practices.
The anti-corruption body had accused Bhattarai of causing losses worth 24.5 million rupees to the state coffers by failing to seek compensation even after KPMG unilaterally terminated the deal. advice.
Although the single bench of the immediate Supreme Court, Justice Tahir Ali Ansari sentenced Corruption Bhattarai, a divisive bench of immediate Supreme Court Justices Khil Raj Regmi and Prem Sharma in 2009 acquitted Bhattarai with immediate central bank chief executive Surendra Man Pradhan over corruption charges, paving the way for Bhattarai reinstatement as governor in July 2009.
During Thursday’s Cabinet meeting, some ministers questioned Adhikari’s working style and accused him of leaking sensitive information to the media, a senior government official said. The decision to form the inquiry committee came later.
The relationship between Finance Minister Janardan Sharma and Governor Adhikari has long deteriorated.
In August last year, Finance Minister Sharma expressed dissatisfaction with leaked information related to monetary policy 2021-22 before its official announcement.
Again in JanuaryAdhikari dismissed the government’s assertion that achieving a 7% economic growth rate in this fiscal year will be a difficult task. This came to contradict Sharma who, despite no signs of recovery, had claimed a growth rate of 7%.
The governor’s suspension came at a time when the country’s economy is facing serious strains and ahead of three-tier elections that could send the country’s financial system into the doldrums, experts say.
âWhether the decision to impeach the governor was justified depends on the charges against him and whether those charges are based on valid grounds,â former governor Dipendra Bahadur Kshetry said. “Based on what has been reported in the media thus far, I have found no valid reason for the governor’s removal.”
The Nepalese Rastra Bank Act-2002 ensured autonomy at the central bank and strengthened the position of the governor. Section 22(5) of the Act specified five bases for the removal of the governor, deputy governors and central bank administrators. Section 22(6) of the Act does not prohibit the removal of the Governor for any other reason.
“This law was introduced to provide more autonomy to the central bank by making it difficult to impeach the governor after the Rawal impeachment incident in 2000,” Kshetry said.
International agencies like the World Bank and the International Monetary Fund also insist on central bank autonomy.
“Their recommendation was also taken into account when preparing the current law,” Kshetry said. “They will also observe how the action against the governor was taken.”
Chiranjivi Nepal, Adhikari’s predecessor, said the government’s decision is unfortunate and aimed to wrest autonomy from the central bank.
âIn the recent past, efforts have also been made to undermine central bank autonomy,â he said. “The previous KP Sharma Oli-led government had also tabled a bill to amend Nepal’s Bank Rastra law by including a provision that allows the government to remove the governor.”
According to The law project, the government could dismiss the governor, deputy governor or director of the central bank’s board of directors. The government could dismiss them if they unnecessarily delay the work of the central bank and delay decision-making. The bill is, however, pending in Parliament. During discussions of the bill, a number of lawmakers had called for ensuring autonomy at the central bank.
Standoffs between the government and the central bank are not new in the world when the economic situation of a country deteriorates.
In Turkey, inflation was above 25% in 2018, but President Recep Tayyip Erdogan openly told the Central Bank of the Republic of Turkey not to raise rates. Governor Murat Ãetinkaya held firm. In July 2019, Erdogan gave himself by presidential decree the power to appoint the governor of the central bank. Ãetinkaya was sacked the same month.
Former Reserve Bank of India Governor Raghuram Rajan’s term was not extended as he took a stance against the Narendra Modi government’s monetary policy. Having insisted that he would only cut rates when he was confident that inflation was under control, Rajan was not offered to second triennium term. There were several rate cuts under his successor Urjit Patel.
A senior central bank official told the Post that economic stability has been badly affected in countries where the governor has been fired for unreasonable reasons.