“Reserve Bank director Warwick McKibbin has publicly questioned whether the Rudd government dumped him from the Prime Minister's science council as payback for saying its fiscal stimulus package was "too big".”The nation deserves better.
Warwick does have a history of breaking a few noses in the interests of speaking the truth. He was said to be very much opposed to the scorchingly high interest rates set by the RBA in the late 1980s, which, it has been mooted, was one reason for his resignation from the Bank.
And he had a public run-in with the previous Governor of the RBA over his ability to sit on my company, Rismark's, international advisory board. This was while Frank Lowy, Australia's largest property investor and the owner of a $1 billion plus hedge fund known as LFG Investments, also sat on the RBA Board. Different strokes for different folks, it would seem.
This touches on an interesting political science question raised by Professor Stephen Bell in his history of the RBA about the curious way in which secretive "elites" seem to control much decision-making in Australia in a decidedly non-democratic fashion.
While I am at it, I find it odd that one of the current members of the RBA Board, Graham Kraehe, is allowed to retain his financial services directorship of Djerriwarrh Investments Limited, which is a listed fund manager with large investments in the major banks. This runs against the previous practice of banning financial services participants from the Bank's Board in accordance with the intent of the Reserve Bank Act. For example, Jillian Broadbent had to resign from her many market-related directorships before assuming her present position on the Board.
The RBA should explain why it has deviated from nearly half a century’s worth of accepted protocols regarding Board appointments in the case of Mr Kraehe, who is the director of a listed fund manager with $224 million invested directly in CBA, NAB, Westpac and ANZ. Additional funds have been allocated to AMP and QBE. Some useful context here is provided by Stephen Bell, who comments:
“The second point of contention regarding the [RBA] Board’s composition is the ban on finance sector representatives because they are thought to be subject to potential conflicts of interest. Board members routinely receive inside information about the price of money in the short-term market…They are also privy to other important information and may be tempted to push for rated decisions likely to benefit their own sectoral interests.The real issue is why I am even having to raise this matter. This is, after all, the most powerful economic agency in Australia. But it is notionally independent of the polity and the only protection taxpayers have with respect to the conduct of monetary policy is its Board. Appointments to the Board, and the management of their conflicts, should not be ‘secret men’s business’. This should be a more rigorous, transparent and governance rich process than that which one finds at any ASX-listed company (admittedly, there have been some incremental improvements made to these practices since the election of the Rudd Government). But for some reason we are still left with an ethical and democratic black-hole. Once again, taxpayers deserve better.
The framers of the original Reserve Bank Act banned financial sector representatives from sitting on the Board but, formally, the matter has proceeded no further…
Periodically, however, the Board is shaken by the issue…In mid 1997 the Bank’s apparent confidence in an ‘ethical fix’ was questioned when it was revealed that Western Mining Corporation had quadrupled its forward sales of gold at the same time as the RBA was secretly selling two-thirds of its gold reserves. Hugh Morgan, the CEO, was a member of the Bank’s Board at the time.”
On the question of the demonstrably inadequate technical competencies of the RBA’s independent members, its otherwise sympathetic historian Stephen Bell ends up concurring with Professor Adrian Pagan’s recommendation after his own time on the Board that it needs two or three outside monetary policy experts that serve on a full-time basis in line with the practice overseas:
“We should aim for a slightly larger and more diverse Board. The suggestion is not radical…The debate at the technical level would be widened by the addition of, say, two extra monetary experts to the Board. This would help keep the Bank’s professionals on their toes and counter tendencies towards ‘Bank think’.”
