COMMENTARY: In his response to our questions about the appointment of Lord Sevele to the board of the National Reserve Bank, the Minister for Finance told us to compare living costs in New Zealand and Tonga as an explanation of why the bank needed the services of experienced people.
We are grateful that Hon. Tatafu Moeaki wants us to learn from New Zealand.
However, we may, respectfully, draw a different conclusion to the one the Minister would like us to make.
Our conclusion is that in New Zealand a recommendation to appoint someone with such a controversial background as Lord Sevele would not be accepted.
If the New Zealand Cabinet did make such a recommendation they would expect to face the consequences of very public questioning.
In New Zealand any appointments to the Reserve Bank are closely scrutinised by the financial press, as happened when criticism was levelled at the bank for the appointment of an economist with what were seen as too strong ties to Australian banks.
We might also expect that the public would want a full accounting for the recommendation.
We do understand that at a time of financial crisis, the Covid-19 epidemic and the potential consequences of Russia’s invasion of the Ukraine, that the government is looking for sound advice from experienced hands.
But is there something else going on?
On re-reading Minister Moeaki’s letter to Acting Chair of the National Reserve Bank, Richard Prema, it is clear the Minister was responding to concerns raised by Mr Prema. In paragraph one the Minister said the concerns had been noted, including other representation of the business sector to the board.
Those concerns were not detailed in the letter, but it is quite clear that there was some concern about the board’s directorship and that Cabinet had responded by appointing Lord Sevele and another director.
The fact that the Minister mentioned conflict of interest in the beginning of paragraph two of his letter leads us to suspect this issue has been raised either by the bank or Cabinet.
The Minister said: “The government needed experienced people to help deal with the kingdom’s financial crisis.”
This led us to ask what experiences Lord Sevele ‘O Vailahi has, apart from his academic background in which he held a Doctor of Philosophy in economic geography. Critics have argued that Sevele should not be regarded as a successful business operator since most, if not all, of businesses he operated have ceased operations. His record while in government as Prime Minister and chairman of a number of boards and committee is open to question.
Is this the kind of experience the Minister of Finance and the Cabinet want to be paid for by taxpayers’ money to control one of the most important financial institutions of the country?
We also asked Hon. Moeaki whether there was a conflict of interest over his recommendation of Sevele, given that the former Prime Minister was a voter in his constituency and they went to the same church.
The Minister of Finance responded by saying that this “had nothing to do with his personal relationship with the former Prime Minister”. The Minister also said: “The National Reserve Bank was not a political body”.
The power to appoint the directors to the board lies with the Cabinet. It depends on the Ministers’ favour and who they think might be a suitable person for the posts. It does not go through the Public Service Commission, so directors cannot be screened using the PSC rules and regulations for civil servants.
The Minister was right that the NRB was an independent body and is not political. But unfortunately, the Cabinet, which appoints directors for government boards, is a political body. And given Tonga’s political system in which the Prime Minister lobbies for a majority of the MPs to vote for him in the premiership election, there is a tendency for the PM and other Cabinet members to refrain from vetting the Minister of Finance’s candidate for NRB directors as a reward for his allegiance to the Cabinet.
Also, each minister will in turn, make the same proposal for their candidates to be appointed by the Cabinet to their various boards. Because the Minister of Finance appears to have supported Sevele’s questionable experiences and failed to justify his recommendation with good reasons, the people have rights to criticise the appointment including blaming him for nepotism.
This situation is clearly unacceptable. Appointments, to statutory bodies like the Reserve Bank should be subject to independent scrutiny and subject to stringent criteria. Appointments to public companies can also offer lessons. For instance, the New Zealand Financial Markets Authority recommends that directors “should be selected and appointed using rigorous, formal processes designed to give the board a range of relevant skills and experience.”
The FMA also recommends that chairs of boards should be independent.
To many people there will remain a question as to whether Lord Sevele has the relevant skills and experience.
Who, then, might fulfil these criteria?
Richard Prema, the Acting Chairman could be a good candidate for the Chair of the National Reserve Bank. He has been a successful businessman, coming from an Indo-Fijian family who moved to the kingdom in the 1950s. They started the Prema and Sons company – of which he is listed as CEO – which sells a range of good.
With a successful background in business, why was Prema not simply confirmed in his position as chairman?