This morning a Reserve Bank press release came out, announcing the appointment of two new external monetary policy advisers. Mr Google suggests that these appointments have not been publically announced since 2003. If so, the Governor is to be commended for the increased transparency (which I assume had nothing to do with my OIA request on 6 April for the names).
External advisers were introduced following the Svensson inquiry into monetary policy, which reported in 2001. Svensson recommended a voting committee to make monetary policy decisions (but a committee of senior insiders). The Bank wasn’t keen and Michael Cullen had no interest in further entrenching the influence of Reserve Bank staff. If anything, there had been talk of an external committee. The Bank’s initiative was to appoint a couple of part-time external advisers.
Over the years, probably 10-15 people have held these roles. In my observation some have made very good contributions, and others less so. That is partly inevitable. They come in to the Bank four times a year, and participate in the several days of fairly intense meetings leading up to the OCR decisions for each monetary policy statement. Some have offered very useful information from their contacts and sectors, but I think almost all have struggled to come to terms with – and make satisfying and effective contributions to – the internal, quite technical, process. Hard questions or nagging doubts expressed in a different language aren’t always taken as seriously as perhaps they should be. It must be a fascinating opportunity for them for the first few times round, but it wasn’t clear to me why anyone would want the part-time role much beyond that.
My concern is about the appointment of Conor English. I have not met him, and have heard him speak only once. But from everything I have read and heard of and about him, I have no doubt that he would be likely to make a useful contribution as an external adviser. Good information on the agricultural sector is very valuable to the Bank in its monetary policy deliberations. But his brother is the Minister of Finance, and is likely to be so for most of the next three years.
The New Zealand system is different from those of many other countries. In many countries, a central bank Governor can be dismissed only in the most grave circumstances (criminal convictions, mental incapacity etc). But in New Zealand, by statute, the Governor is responsible for implementing monetary policy in pursuit of an agreement with the Minister of Finance and he can be dismissed if his performance is not up to scratch. The Minister of Finance has the power to dismiss the Governor (through the Governor General, by Order in Council) on policy grounds:
Sections 49 and 53 provide that the Minister may seek the removal of the Governor (or the Board may recommend that the Minister do so) if he is satisfied on any of several counts. These include, inter alia, the following which bear directly on monetary policy:
- That the Bank is not adequately carrying out its functions (the primary function being monetary policy); or
- That the performance of the Governor in ensuring the Bank achieves the policy targets has been inadequate; or
- That a Monetary Policy Statement is inconsistent in a material respect with the Bank’s primary function, or with any policy target fixed in the Policy Targets Agreement.
For the Governor to appoint the Minister of Finance’s brother as one of his principal monetary policy advisers could put the Minister in quite an invidious position if serious concerns about the Governor’s performance are ever raised. And these would be issues of complex judgement – it isn’t a mechanical exercise. If the Governor were to be dismissed would the Minister be reflecting adversely on his own brother? And if, despite a case for dismissal being made, perhaps by the Board, the Minister decided not to dismiss the Governor, he would open himself to claims that he didn’t want to be acting negatively towards his own brother.
Everyone hopes these sorts of powers never have to be invoked. But laws, and governance frameworks in particular, are there primarily for tough times, not ordinary ones. And I don’t question the integrity of either the Minister or his brother (or of the Governor for that matter), but it is important not just that people act with integrity, but that they are not put in a position where reasonable questions about that integrity might be posed in future.
Sometimes this sort of potential conflict of appearance might be unavoidable. A person gets appointed to a ministerial portfolio, and a sibling just happens to work for an agency in that portfolio. But this is not one of those cases. An external monetary adviser is a part-time responsibility, an interesting opportunity, but out of the mainstream of anyone’s career. Bill English won’t be Minister of Finance for ever, and his brother could, quite appropriately, have been appointed at a later date.
The Governor is one of the most powerful people in New Zealand, and the conduct of monetary policy is his primary statutory role. This is not the most serious conflict ever, but it is simply unnecessary.