Two days ago speculation that the governor of the Central Bank of Uganda was going to resign sent the shilling, already free falling, careening towards a new low. These are bad days for Governor Mutebile and bad days for the shilling. Earlier in an interview with the Financial Times, he called his boss President Yoweri Museveni a closet marxist and all but blamed him for the problems of an overheating economy.
I think Mutebile should resign. Not for moral reasons. There is concern that if he goes confidence in the economy will go with him perhaps sending the shilling to the grave. While there is merit in this perhaps it is holding us back from considering the advantages of his resignation.
If Mutebile goes some of the volatility associated with his management style will go with him. Traders are currently “feasting” on his predictability mainly because his singular response to the currency crisis is to “mop up” excess liquidity to shore up the shilling. This translates to selling dollars cheaply in the market. In the past two weeks it has created a ping pong game with speculators who bet correctly so far that as long as the shilling is weak, Mutebile will throw more of the green buck at them. Having a new governor may send some shock waves yes, but traders and speculators will have to re-allign their expectations which will likely have a knock on effect on speculation itself.
As it is now a game of Charlie Brown and the football is exhausting national reserves.
The new governor, someone like Luis Kasekende now his deputy, and viewed as somewhat of a reformer ( he got kudos from the economist Joseph Stigliz who is an advisor to some struggling governments in Europe when i met him -Stigliz- recently in San Francisco), may be more likely to go beyond this singular approach to the weak shilling.
Kasekende can for example impose limits on capital transfers. Mutebile had huffed and puffed about “burning the fingers” of speculators but he has not.
There are other valid reasons for the governor to resign.Close friends say he wants to throw in the towel anyway but my own sense is that the so-called confidence that the international finance community associated with his macro-economic genius is over. After saying he was powerless to prevent the draw down of the Foreign Currency Reserves ( the Uganda government used the money to buy fighter jets), he effectively threw out all expectation of Central Bank independence under him. Soon afterwards the Auditor General released a report showing the overhead costs at Bank of Uganda were running amok, a sign of questionable administration long rumored to go on behind the wall of the Banks independent status, and more news that the CB had failed to discipline Ministry accounts.
One may say this may not change if he is gone but perceptions are important. A new man is still a new man and may be given a benefit of doubt by the market. Administratively someone like Kasekende can help restructure the bank, bring down its costs and revamp confidence- the one asset suffering here.
This whole affair leaves a bad taste in the mouth. Sometime in May 2010 i expressed fears for inflation and the currency- ahead of the election to my business editor at the Daily Monitor Fred Masiga. Consequently i was allowed to do a story which i published ” Shilling in Circulation increase” May 11, Daily Monitor, Angelo Izama”). At the time Governor Mutebile had introduced new currency notes ( another story). He however went out of his way to say he acted “independently”. The story captures part of the dilemma the bank was facing reigning in the currency and government expenditure. A year later clearly Mutebile has failed the test. He should go.
