Governor Mutebile and Uganda’s economy

Governor Emmanuel Tumusiime-Mutebile’s unprecedented third term at the helm of Bank of Uganda (BoU) will come to an end in January 2021.
But the tumult that has come to characterise the twilight of his 40-year career in key positions of Uganda’s economy may not pay sufficient tribute to the mettle the man is made of.

In his maiden speech as governor of BoU on March 2, 2001, Mr Mutebile gave an insight into what sort of leader he was likely to be – a man of action.

“It is said that the perfect bureaucrat is the one who manages to make no decisions but escapes all responsibility. I do not want to see perfect bureaucrats in the bank,” he said.

Close to 20 years since that day, he is looking like that imperfect bureaucrat that he most probably wanted to see. He has not run away from taking some tough decisions, including moving against a bank in which he had been a shareholder. The result is that there are more than four carcasses of banks that have met their death during his tenure as governor.

In the spotlight
BoU has been in the eye of the storm since last year. Disgruntled staff within BoU torched it off by complaining to the Inspector General of Government (IGG) about new recruitments Mr Mutebile had made. The spat between the Governor and IGG was followed by a probe into the affairs of BoU by the parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (Cosase).

The Cosase probe concluded that officials at BoU had made many “questionable decisions” and contravened sections of the Financial Institutions Act (FIS) during the closure and sale of the banks.

Some of the breaches included closing and selling the banks on the same day as was with the case of the National Bank of Commerce; appointment of auditors after the sale; failure to compile inventory reports, which meant that BoU was clueless about the value of the institutions it had sold.

For example, while BoU invited Dfcu Bank to table a bid for Crane Bank on December 9, 2016, and Dfcu submitted the bid on December 20, the auditor’s inventory report came in a day after the bid had been submitted. Cosase recommended punitive action against those that flouted the law.

It was not possible to talk to Mr Mutebile for this article. Attempts to arrange for an interview through the bank’s director of communication, Ms Charity Mugumya, were futile by press time.

The deputy governor, Mr Louis Kasekende, also declined to respond to questions around the Cosase probe.
“What would be the value of responding to the conclusions of a report that has already been adopted by Parliament?” he asked.
But Mr Mutebile, while speaking in Fort Portal, Kabarole District in March, dismissed the conclusion that BoU had failed in its supervisory function.

“Contrary to the negative coverage about the Central Bank during the parliamentary probe into closed banks recently, I can confidently say that none of the failed banks in our past came to its end because of the failure of supervision by the Central Bank,” he said.

Worth noting, however, is that the report of the probe that focused on the closure and sale of banks, including Teefe Bank, International Credit Bank Limited, Greenland Bank, the Cooperative Bank, National Bank of Commerce, Global Trust Bank and Crane Bank Limited, some of which had been dissolved before Mr Mutebile took charge, has since come under criticism for, among other things, failure to look at the role that some shareholders and managers played in running down the banks by either stealing from their depositors or engaging in dubious transactions.

Then came a probe by a tripartite committee comprised of MPs and officials from the IGG and BoU, which was constituted by the President to probe staff transfers and appointments that the governor made on February 7, triggering off an exchange of missives between him and the IGG.

During his September 19, 2018, interface with the committee, Mr Mutebile justified his actions on grounds that he was acting with authority of the board delegated to him on May 30, 2012, but the committee concluded that he has continued to unjustifiably use an instrument that had only given him interim powers to handle any matters that would have required the board’s input pending the ratification of a new board.
“There is nothing in the Board Charter which stipulates that a governor will always assume powers of the board in the interim period when a Board’s term has expired and a new board is yet to be constituted,” the report reads in parts.

The tripartite committee is now accusing Mr Mutebile of, among others, usurping the powers of the board of directors contrary to Article 161(2) of the Constitution, which provides that “The authority of the Bank of Uganda shall vest in a board which shall consist of a governor, a deputy governor and not more than five other members”.

Earlier accusations
The accusation that Mr Mutebile has often misdirected himself to present himself as the board is not new. Between October 2010 and April 2011, Mr Mutebile issued six letters of comfort to companies owned by businessman Hassan Basajjabalaba, on grounds that government owed him money in compensation for losses incurred following the revocation of contracts that had been signed with Kampala City Council to manage three markets and also develop the Constitutional Square.

The letters of comfort were used as guarantees to obtain loans to the tune of $65m (about Shs237.7b) from four commercial banks, which the companies defaulted on forcing government to pay back the loans from the Consolidated Fund.

After initially appearing reluctant to appear before the Public Accounts Committee (PAC) of Parliament which was probing Mr Basajjabala’s dealings, Mr Mutebile did appear before PAC, but declined to answer several questions regarding his role in the questionable compensations and resultant loss of public funds.

There has always been a belief that BoU could not have issued the letters of comfort without the consent of President Museveni, but he disassociated himself from the entire compensation saga and directed in an October 6, 2011 letter to then Attorney General, Peter Nyombi, that the money be recovered from Mr Basajjabalaba.

“…Some thieves yet to be established in the various government departments, colluded with Basajjabalaba to pay him the incredible figure of 142 billion. I have seen Basajjabalaba claiming that I ‘Okayed’ that figure. This is totally false. In any case, the President, or anybody has no power to okay what is illegal or illegitimate,” he wrote.

The money has never been recovered and Mr Mutebile is one of the 20 respondents who were dragged to court for violating Article 159 (2) of the Constitution, which bars government from borrowing or guaranteeing a loan without the authority of Parliament.
Among the many issues that the Legal Brain Trust has tabled before court is one for an order to compel Mr Mutebile and others to pay back the money that was drawn from the Consolidated Fund.

The tripartite committees’ report also indicts Mr Mutebile of usurping the powers of his deputy and promoting polarisation and cliques among members of staff.

“The most notable impact of the governor’s decision when it comes to polarisation is the exposure of the rift at the top of the hierarchy. The fact that even the Deputy governor was not made aware of the changes the governor intended to make is very telling indeed in terms of the relationship between the two principals. The perception of polarisation in that regard is very real indeed and has a direct bearing on the polarisation of bank staff into cliques,” the report further reads.

Mr Mutebile had defended his decision to recruit staff for purposes of strengthening controls and improving operational efficiency; complying with BoU policy; and ensuring continuity as some members of staff had been due for retirement.
Among the recommendations made by the committee to scrap the requirement for the Governor to also serve as chairman of the board of directors.

It is quite pitiable that the recommendations for changes at BOU have been precipitated by his omissions because at the moment, it is quite hard to talk about the remarkable story of Uganda’s economic recovery without talking about Mr Mutebile, who has held various posts in the Ministry of Finance, Planning and Economic Development during the Museveni era. The man who served as Permanent Secretary/Secretary to the Treasury before taking over as BoU boss hovers large over the economy of Uganda like a giant sphinx.

His record

One of Mr Mutebile’s biggest achievements was to keep the Shilling stable and afloat during the global economic meltdown that was experienced between 2008 and 2009, which left the economies of most African countries in crisis.
Under Mr Mutebile, BoU has pursued a monetary policy aimed at achieving low and stable inflation, with a medium term target of 5 per cent of core inflation. Inflation, which stood at 1.9 per cent when he took over in 2001, has been kept in single digit figures for most of the time he has been at the Central Bank. The exceptions were the period between 2008 and 2012 when it averaged 11.6 per cent.
Dr Fred Muhumuza, a development research economist and a lecturer at Makerere University has, however, is critical of BoU’s approach.
“Inflation targeting is not the right thing to do when inflation is mainly structural,” he says.
It was not possible to interview Dr Ezra Suruma for this article. He in a text message to this newspaper said he was out of the country, but the man who once served as the deputy governor of BoU and later minister for Finance, has emerged as one of the critics of some of BoU’s policies under Mutebile. He has been particularly critical of the 2010 financial reforms that bar Ugandans from owning more than 30 per cent of a microfinance institution. The reforms also saw the minimum capital requirement for setting up a commercial bank raised from Shs4 billion to Shs25 billion.
“This is a stupid law. And we have many stupid laws that must be rejected and amended,” he told students of Makerere University in November 2013.
Dr Suruma argues that the stringent demands have killed the dreams of indigenous people who wish to start up financial institutions. In other words, BoU under Mr Mutebile has been driving Ugandans out of the banking sector.
For quite a while now, sections of the business community and the private sector have been arguing that BoU has not been doing enough to help Ugandans access cheaper money. Commercial banks charge interest rates ranging between 20 and 22 per cent. The rates never go down even when BoU lowers the Central Bank Rate (CBR). In January 2012, traders attacked Mr Mutebile over the matter, but his response left a very bitter taste.
“Go to the banks that charge lower rates,” he told them.
Others like Mr Gideon Badagawa, the executive director of the Private Sector Foundation Uganda (PSFU), have been critical of BoU for issuing projections on growth without addressing itself to some of the things that facilitate it.
He argues that very little has been done to facilitate growth in agriculture and the private sector. Growth, he insists, cannot be achieved unless government quits domestic borrowing, which is partly responsible for the high cost of money.
“You cannot achieve the 6.5 per cent growth without supporting the private sector to borrow cheaply. We are competing with our colleagues who borrow at 2-3 per cent,” he says.

Spats with President Museveni

In May last year, Mr Mutebile and President Museveni disagreed during the Africa Blockchain Conference over the crypto currencies, with Mr Musevnei labelling him “a dogmatic person unwilling to adopt to new technologies”.
Crypto currencies are decentralised digital currencies that can be transferred between crypto wallets of peers in different parts of the world. The transfers are confirmed in public ledgers and at a cost that is far less than what is charged by commercial banks. The currencies have been hailed for improving the speed at which transactions are effected, but Mr Mutebile does not think much of them.
“No crypto currency can match a well-managed or original currency. Crypto currencies do not have the privileges of legal tender and are not backed by the Central Bank, which ensures the supply of the currency is always adequate with the demand. Furthermore, there are no external mechanisms for backing crypto currencies to ensure that they have a stable value,” he said, which earned him the rebuke.
The biggest spat was, however, in 2011 after Mr Museveni decided to spend $740m (about Shs2.7 trillion) from the nation’s reserves to purchase fighter jets. In an interview with Financial Times, a UK newspaper, Mr Mutebile vented his frustrations with Mr Museveni’s “erratic policies” and “fiscal indiscipline”, which has seen the Ministry of Defence withdraw $400 million (about Shs1.5 trillion) from the Central Bank without Parliament’s approval. The decision saw the reserves sent down from six to four months.
His comments served to cause dollar outflows with volumes reaching an unprecedented $30 million (about Shs112b) on June 15, 2011 alone. BoU had to intervene by sinking another $20 million (about Shs73b) to stabilise the foreign exchange market.
The interview with the Financial Times had been expected to cause his sacking, but Mr Museveni left him in charge to fight the inflation that had reached the 16.2 per cent mark that year.
During that maiden speech in March 2001, he said: “Good governors, like good tea, can only be appreciated when they are in hot water.” He too might be appreciated at this point in time.