Editorial | Put BOJ reform plan in White Paper
Over the past two decades, especially since the late 1990s collapse of a large swathe of the island's financial sector, the Bank of Jamaica (BOJ) has operated with a fair degree of autonomy, driven largely by the demands of a liberalised economy. But while some autonomy has been legislatively achieved, much of that independent-mindedness emerged from convention, the personality of governors, and their relationships with finance ministers, rather than being founded in law.
The Government is now moving, in keeping with an undertaking to the International Monetary Fund, to legislate and deepen the bank's independence. More important, though, the pursuit of low inflation and price stability is to be established as the BOJ's primary mandate.
Or, as Finance Minister Nigel Clarke put it in a policy speech last week, "The principal monetary policy goal of the central bank will be to achieve an inflation target, and all other tools and indicators will be subordinated to this aim." The clear corollary to that, although Dr Clarke didn't articulate it in these terms, is creating an economic environment that is conducive to employment creation, which usually means economic growth.
As Dr Clarke explained: "A central bank under the control or influence of the political directorate can be pressured to sell and squander precious, hard-earned reserves to artificially fix the level of the currency in response to anxiety, even if this undermines inflation objectives and even if such interventions have no real, lasting effect, simply because it may be politically advantageous for the politician or the administration for that to happen."
The declared policy goals have the support of this newspaper, and, no doubt, of most Jamaicans, who have seen evidence of how lax fiscal policy, enabled by permissive monetary officials, facilitated the politicisation of economic decision-making to the detriment of long-term development.
In this regard, Section 41 of the Bank of Jamaica Act, which vests the finance minister with the authority to give the BOJ directions he deems to be in the "public interest", as well as instruct it on sectors to which it should steer credit, is probably among those under scrutiny for major overhaul, if not total excision.
Dr Clarke, in line with the consensus from Jamaica's policy debates and the global norm for independent central banks, signalled an intention for the BOJ to have a Monetary Policy Committee, the minutes of whose meetings would be published on a lagged basis. The central bank governor would also periodically appear before parliamentary committees to account for his actions.
Public input needed
On the face of it, however, the public will not have access to the specifics of the legislation before the amendment to the Bank of Jamaica Act, and related legislation, are tabled in Parliament in October. Nor is there any certainty that these bills will be subject to scrutiny by a select committee of Parliament, which might invite the public's input.
While we support the proposals outlined by Minister Clarke, appreciate the time constraint he faces, and understand that specific interest groups are being consulted, we believe that those discussions should be broadened, giving the wider public an opportunity to be part of the discourse. At the very least, he should, as a matter of urgency, publish a White Paper on the subject, including the specific changes he plans to make.
Indeed, he already has the basis for such a document in the "detailed proposals for the modernisation of the central bank", to which, as he recounted, the Cabinet gave its approval "a few weeks ago".