Maravi

Reckless bravado

COMMENT - " Rupiah doesn’t know that the exercise of power must be the constant practice of self-limitation and modesty " - and he shouldn't. This is why the 'good fellow hypothesis' doesn't work, and why the only way forward is to have a proper separation of the powers of state, spelled out in the highest law in the land, the Zambian Constitution. People who spend most of their lives getting to the top don't voluntarily put limits on themselves. Only the courts and the law can do that.

Reckless bravado
By The Post
Wed 15 Dec. 2010, 04:00 CAT

The government and its central bank, the Bank of Zambia, have caused the run that Finance Bank is today experiencing. Whatever the problems at Finance Bank were there were better ways of dealing with that bank than what they have done. What they have done amounts to an assassination of the bank.

Today, Finance Bank is seriously bleeding and may die. Why? In the face of many alternatives Rupiah Banda’s vindictive government chose to use a nuclear bomb to get rid of one individual, when one shot from a pellet gun could have done the job.

It is clear that the decision making process that has brought Finance Bank where it is was driven by emotion and strong feelings of hatred for whatever reasons. We say this because it does not make sense for someone to bomb the whole country just to destroy one person who one has problems with. But this is what they have done. There is no doubt that Rupiah has problems with Rajan Mahtani and in the quest to destroy him he has gone for the whole bank.

Yes, Rajan is the major shareholder and founder of this bank but today this bank is far bigger than him. And Finance Bank, strictly speaking, does not belong to Rajan – it belongs to all those who use it, to all those who earn a living from it, to all those who have deposited their money in it, to all those who work for it. Rajan does not own Finance Bank, he only holds shares in it.

And because of this the effects of the destruction of this bank will go far beyond Rajan. And this is what those who decided to use such excessive force to settle personal differences should have thought about before deploying the means that they chose.

Today, our people have the option of withdrawing all their money from Finance Bank and they are doing so amass – causing a run on the bank. But this is not the end of the story. The story does not begin and end with their deposits being withdrawn. They are so many things that will arise from this reckless decision and action that will follow our people for some time. And it doesn’t matter whether one banked with Finance Bank or not.

Already close to half a trillion of taxpayers money has to be deployed to meet the consequences of this reckless adventure. We say this because it is not possible for Finance Bank, which they have nationalised because of alleged liquidity problems, to be able to meet such unprecedented gigantic withdrawals. The money is coming from public coffers.

And even public coffers cannot meet such a huge requirement of cash without unhealthy fiscal policy compromises. Many social services will have be sacrificed. Soon there will be cholera everywhere because the government has no money to provide people with clean water and decent sanitation. There will be potholes everywhere which the government will fail to mend. The list of what the government will fail to do as a result of this reckless adventure is endless. And to this endless list we may have to add inflation.

We have no doubt that at some stage Rupiah’s government will resort to printing cash to finance their hatred for Rajan. The result of this is very simple to discern – inflation will rise and our poor people will be saddled with a subtle tax to finance Rupiah’s ego. We say this because the whole move against Finance Bank is being pursued to satisfy Rupiah’s desire to finish Rajan. But at what cost? Even in a war one has to measure the cost of trying to seek a total annihilation of an enemy. The cost may be too high to oneself and to the enemy to justify finishing him off. For this reason, when one has obtained a strategic advantage the war stops to save oneself unjustifiable costs.

If banking regulation was what was the issue in the Finance Bank debacle we do not see how the central bank could have chosen the methods that they have chosen. In many ways, their behaviour contains elements of reckless bravado, triumphantalism which does not seem to be benefiting them. We say this because with one single reckless act the central bank had totally erased the appearance of professionalism and competent handling of the financial sector which they carried. It does not make sense that they did this on their own.

It is very clear that this was foisted on them, their independence has been compromised and completely obliterated. This is also clear because by doing what they have done, Caleb Fundanga’s central bank has opened the market to open-ended system-wide risks that they cannot easily control. In other words, in attacking Rajan they have attacked all the banks in our country. And the weak banks, especially those whose ownership is predominantly Zambian, are going to feel the consequences of this recklessness for a very long time to come.

We should not forget that our financial sector is still very small and fragile. Ours is a very small economy. And the destruction of the banking sector during the Frederick Chiluba years when banks where collapsing like dominos has not been forgotten by our people. That period coincided with Chiluba’s reckless neo-liberal wanton destruction of the economy which left many of our people on the streets without jobs.

Some of those who lost jobs put the little they where paid in some of these banks which collapsed. And Rupiah was a shareholder and director in Africa Commercial Bank which went under with many Zambians, including this newspaper, losing their money. Against this background, how can Caleb agree to preside over the destruction of a nascent banking sector that has taken so much effort to nurse back to health.

They should have known that the measures they have taken on Finance Bank will lead to a run on the bank, would impair the bank’s capacity and bleed it to death. Was this their intention? Or can they tell us that what is happening to Finance Bank today was not foreseen or could have not been foreseen?

What then was so important which necessitated the clearly reckless measures which they have taken? What justifies Caleb’s deployment of the equivalent of a nuclear bomb on our financial sector? We say this because in financial terms what they have done is to destroy the fibre that constitutes the fabric of banking.

They have destroyed confidence in their ability to fairly regulate the banking sector without bowing to political pressure. And once confidence is lost in a market it takes many years to restore it if at all.

And in the meantime the economy is dragged down by a skittish banking sector which is too scared to do its work properly for fear of political reprisals. Every activity that they undertake has to be looked at through the extra spectacles of political correctness. The banks start behaving like bad newspapers, they engage in unhealthy self censorship.

Confidence is a foundation upon which a healthy banking sector is built. If you destroy confidence you make it very difficult for the banking sector to make meaningful contribution to the economy. And this is what Caleb, at the behest of his political masters has done to our country.

Surely, whatever problems Finance Bank had could have been resolved at a cheaper cost to the taxpayer than what the government is today pumping into it. When one thinks that this was just to fix Rajan then the price becomes even more obnoxious. Why risk the whole banking sector just to fix an individual? But this is consistent with the way Rupiah behaves and operates. It seems to him cost does not really matter.

What matters is his getting what he wants. To him, power is there to be used to crush his enemies, real or perceived. Rupiah doesn’t know that the exercise of power must be the constant practice of self-limitation and modesty.

Labels: BOZ, CALEB FUNDANGA, CORRUPTION, FINANCE BANK, RAJAN MAHTANI

posted by MrK @ 3:38 PM