Since outgoing Bank of Ghana Governor Dr Henry Kofi Wampah’s decision not to seek a second term in office and indeed cut short his first and only one, was made public on Tuesday, the abrupt end to his career as central bank chieftain has dominated the attention of the financial media as well as the financial services industry itself.
Since then virtually everyone, including politicians whose expertise is in populism rather than monetary policy, have joined in what at times has seemed to be a feeding frenzy of critical analyses of Dr Wampah’s tenure as BoG Governor.
[contextly_sidebar id=”cRwyAxyUw0iK0D5R7Kz1yVQdQzxSr0n0″]Discussions have ranged from his track record at the central bank, to the reasons for his early retirement and also the selection of his successor.
But it is the first issue, his track record, that has attracted the most attention.
The predominant verdict is not a favourable one. Dr Wampah has been blamed particularly for the cedi’s sharp depreciation during extended periods over the past two years during which the currency fell by nearly 50% cumulatively against the US dollar and most recently for the meltdown in the microfinance industry with consequent loss of well over GHc100 million in depositors’ savings.
Alongside these, he has also been blamed for allowing government to borrow beyond its ability to comfortably service its debts, which has resulted in an inordinate public debt to Gross Domestic Product ratio of over 70%. More lately he has been intensely criticized for using excessively tight monetary policy to strangulate economic growth.
Perhaps it is this last issue however, taken in its wider context of the efficacy of monetary policy, that best illustrates how Dr Wampah, in addition to some genuine shortcomings, is now being made the scapegoat for virtually everything else that has gone wrong with the Ghanaian economy, including things over which he had no control and others where much, if not most of the blame, should be firmly placed elsewhere.
Consider this: during the first two years of his tenure Dr Wampah, obviously in appreciation of being given the BoG top job in the first place, in very unusual circumstances, saw fit to not only accommodate government’s inordinate domestic borrowing, but also to deploy an expansionary monetary stance that made money readily available to fund the provision of credit across the economy generally, a situation that generated demand pull inflation.
For this Dr Wampah was correctly, heavily criticized by economists and private sector operators alike who pointed out that through him, government was being allowed to engage in fiscal irresponsibility with regards to the deficit, which at the time exceeded 10%.
He also was justifiably blamed for the inefficient structure of the public debt and the way it was being serviced.
He was also blamed for allowing loose monetary policy to fuel excessive demand for foreign exchange which resulted in sharp cedi depreciation.
Yet since the BoG, under the guidance of the International Monetary Fund, began severely tightening monetary policy, he has been blamed for exactly the opposite reasons.
The two most recent hikes in the Monetary Policy Rate, of a cumulative 200 basis points, have been blamed for strangulating economic growth, which , his critics argue, cannot happen with the MPR at an unprecedented 26%.
The argument that loose monetary policy creates demand pull inflation has been replaced one with that blames the tight monetary stance for cost push inflation in the form of excessively high cost of credit. Complaints that Dr Wampah had allowed government to borrow its way into trouble too easily have been replaced by criticism that current monetary policy has raised government’s borrowing costs too high. On the other hand he has not had any pats on the back for using tight monetary policy to stabilize the cedi, even though an examination of Ghana’s worsening trade and external current account deficits show that tight money is all that now stands between the cedi and another steep fall.
Actually, Dr Wampah lost the battle for the “hearts and minds” of Ghanaians in 2014 when, in response to a spectacular nearly 20% depreciation of the cedi within just two months, the BoG announced an array of controversial restrictive measures aimed at stabilizing the exchange rate by drastically slashing effective demand for foreign exchange.
The measures infuriated the business community and failed to win the support of economic analysts, and so when they eventually failed and were withdrawn, Dr Wampah and the central bank he ran, got the blame for the country’s continuing exchange rate problems.
In all this it was forgotten that it was the fall in the global market prices for both gold and cocoa, not the tinkering of the central bank, that set off Ghana’s forex troubles, which have since been exacerbated by an even sharper fall in crude oil prices.
But here again, Dr Wampah did create the platform himself, on which his critics were to unfairly blame him for the woes afflicting the economy.
Simply put, the emergency restrictive measures aimed at curbing speculative demand for foreign exchange by those who simply sought to use it to turn a quick profit or hold it as a store of value.
The measures sought to ensure that demand was effectively restricted to whatever forex was actually needed immediately for transactions at any time.
While this was well intentioned, Dr Wampah failed to realize that market confidence was the key factor affecting the cedi’s fortunes.
The restrictive measures were seen as panic measures in the face of acute forex shortages and thus, while achieving some success in curbing effective speculative demand, they actually served to greatly increase the desire of individuals and businesses, currency speculators inclusive, to hold forex rather than cedis.
As always, the market started finding ways around the restrictions, this time armed with even less confidence than before. Finally, Dr Wampah had little choice than to back track.
The untenuous position he was sinking into is illustrated by what happened when the cedi began to sink sharply again in 2015.
Having learnt his lessons from the policy mistakes of the previous year, and this time around armed with IMF balance of payments support, he resorted to direct interventions in the local forex market through regular injections of foreign exchange.
However, Dr Wampah still came off being made to look bad, accused of “wasting” public money on unsustainable market interventions.
The final straw came with the still ongoing microfinance debacle epitomized by the spectacular collapse of DKM Microfinance and God is Love Fun Club.
With customers losing their deposits to their own greed for obviously absurd interest yields being offered, and politicians seeking to give their constituents someone to take their frustrations out on, the regulator which had failed to act quickly enough to minimize the damage, was the perfect target.
Again Dr Wampah himself armed his persecutors when the BoG curiously took six months to commence on site inspections of DKM from the time off site inspections had pointed towards clear, major infractions. Simply put, because of the delay in moving to stem a problem caused by the micro financiers and their customers, he is now going down in history as the actual architect of the problem himself.
With all this history will definitely be unfair to Dr Wampah, and he will be stuck with the blame for things beyond his control as well as for those where there were policy lapses. But he is partly to blame for his misfortune and will be remembered as hapless, rather than as largely a scapegoat during an era when all sorts of things had gone wrong with the economy.
By: Toma Imirhe/citibusinessnews/Ghana