2010 Central Bank Anniversary Lecture
Fri, 03 December 2010
2010 Central Bank Anniversary Lecture
Address by President James Michel
December 3, 2010
Dr Gavin Bingham, Secretary General of the Central Bank Governance Forum at the Bank of International Settlement,
Former President James Mancham,
Speaker of the National Assembly,
Governor of the Central Bank,
Ladies and Gentlemen,
The Anniversary Lecture of the Central Bank of Seychelles is an eagerly awaited annual event; it is an opportunity for all of us to share some thoughts on a number of issues that impact on us in many different ways. I am happy to be with you here today.
This year’s lecture, entitled The implications of the financial crisis for the governance of central banks", is particularly fitting as it addresses two critical issues that are highly topical in today’s environment. Firstly, the global financial crisis is one that has had a bearing on Seychelles in many ways. Secondly, governance of the central bank is something that all Seychellois have come to take very seriously. I am, therefore, extremely pleased that the CBS has chosen this particular theme for this year.
Ladies and Gentlemen,
When I addressed the Seychellois people on 31st October, 2008, to spell out my new vision for the economic management of our country, I was mindful of the adverse impact of the global financial crisis and the need for us to remain resilient if we were to ride this storm. But, beyond just words, we needed concrete actions.
In the face of this storm, my Government took the bold decision to pursue a full and comprehensive macroeconomic reform program. This decision was not without its risks. Above all, there was the risk that such a small island, with an extremely high openness index, with hardly any reserves at the time, would be able to liberalize in the face of a crumbling world economy on which we depend so much. Some had suggested that we needed hundreds of millions of dollars to do so. But we showed in the end that smart minds and determination were as equally important, if not more so, than an inflow of capital. I was also mindful of the political risk, but I was prepared to take it for the national interest comes first. Risks, as we know too well, come with reward. The higher the risk, the greater the reward, and today we, the Seychellois people, are reaping the rewards of the reform programme.
Ladies and Gentleman,
Our economy today is buoyant. Real GDP growth for 2010 is projected to outpace the original growth forecast and exceed 6 percent. The Government budget continues to perform impressively, so much so that we have already surpassed the primary fiscal surplus target for this year, at 10 percent of GDP. This will provide us with more fiscal space for the benefit of our people. The inflation rate continues to hover around zero percent, while the exchange rate remains stable in the face of volatility in the world’s leading currencies. Official foreign exchange reserves continue to grow at an impressive pace, having already surpassed the 2-month import threshold. Our debt level continues to decline as our debt-to-GDP ratio moves towards the path of sustainability. These impressive indicators point to the overwhelming success of our economic reform program.
Notwithstanding our achievement in successfully stabilising our economy, it is critical that we pursue our structural reform agenda to preserve these gains. In this regard, my Government will pursue our structural reforms with the same vigour and determination that we have shown over the past two years.
Critical to the success of our reform programme has been the contribution of the Central Bank of Seychelles. As most of us here today would appreciate, one of the fundamental pillars of our macroeconomic policy is our monetary policy. When I embarked on our journey to transform the Seychelles’ economy two years ago, I was convinced that a prerequisite for a successful monetary policy framework would be an independent Central Bank. I felt that this was absolutely necessary if the CBS was to deliver on its monetary policy mandate to the full. To this end, Cabinet approved several fundamental amendments to the Central Bank Act in early 2009, which were subsequently passed by the National Assembly.
The new Act, as amended, provides a streamlined and more focused set of objectives, with price stability spelled out clearly as the Bank’s primary objective. In terms of accountability, the amended Act provides for the Governor to be called before the National Assembly to explain and answer questions on monetary policies and other activities of the Bank. With regards to independence, it disqualifies all Government members and employees, and all persons affiliated with a political party as a potential member of the CBS Board of Directors. Moreover, no CBS Board member may sit on other Boards, except where these have a direct implication on the work of the CBS. The new Act also bars CBS Board members, including the Governor and Deputy Governor, to be influenced by any person in the discharge of their duties. With these provisions, our amended CBS Act meets the fundamental criteria of best practice when it comes to central bank governance structure of clear objectives, accountability, and independence.
Ladies and Gentlemen, since assuming office, I have accorded the greatest importance to governance in my Government’s efforts to improve transparency and accountability. I am pleased to note that our Central Bank has also made important strides in that regard.
Just over two years ago, a Safeguards Assessment carried out by the International Monetary Fund pointed out several areas that required strengthening. One of these areas was the governance structure of the Bank. In July 2010, exactly two years later, a similar report concluded the CBS has made substantial progress in implementing the recommendations of the 2008 report, which has resulted in a marked improvement in the Bank’s governance structure, among other things.
The fact that the CBS has chosen governance as the main theme of this year’s lecture illustrates the importance that the Management of our Central Bank attaches to the issue of governance. The people of Seychelles appreciate the critical role played by the Central Bank in the success of our reforms through its monetary policy and its endeavour to continue to improve governance and transparency in its operations.
I have followed with interest the progress that the CBS has made over the past two years to further modernize its banking supervision framework and other regulatory requirements, with the assistance of the IMF in particular.
Ladies and Gentlemen,
One of the reasons that Seychelles was able to weather the financial crisis with minimal impact on the domestic financial sector is that the CBS already had in place an adequate supervisory and regulatory framework that ensured that financial institutions were adequately capitalized. Also, the CBS itself had in place adequate instruments that would have allowed it to assist any institution that could have got in trouble.
Indeed, there were significant risks for some of our institutions when we launched the reforms, which coincided with the implosion of US and European financial systems in late 2008. One of our government banks faced serious interest rate risks, whilst another faced serious exchange rate risks. However, as a testimony to the resilience of our financial system, both banks weathered the storm without any assistance from the CBS or from Government.
As events over the last few days have shown, the financial crisis is far from over. No country, large or small, is immune to it. We must remain vigilant and prudent. We cannot afford to let our guard down, nor can we be complacent. But with the implementation of sound policies and with the watchfulness of the CBS, we can face the challenges ahead with confidence.
Ladies and gentlemen,
In a few moments, you will hear more from our guest speaker about the implications of the financial crisis for central bank governance. I know you are all eagerly looking forward to Dr. Bingham’s presentation. I would like, therefore, to conclude by thanking the Central Bank for hosting this important event, and for inviting me to address you today.