With the Sobrino saga still gripping the nation and a selective ‘press conference’ that has created more confusion than clarity, Weekly speaks to Dan Maraye, former governor of the Bank of Mauritius, about the role of the central bank and the Financial Services Commission. He also explains why he thinks transferring the power of granting investment banking licences to the FSC was a bad idea.
The Sobrinhogate, as it has come to be known, continues to occupy the headlines. Just what do you think of this whole saga? How serious is it, according to you?
Well, to answer this question, I will talk a bit about history. Sometime in 1996 or 1997, when the then government decided to set up the Financial Services Commission (FSC), I was the governor of the Bank of Mauritius (BoM) then and our views were solicited. We were not in favour of setting up the FSC. This is on record and must still be in the PMO.
Why were you against it?
It was not the best thing for Mauritius for several reasons: one was that setting up such an institution could create a regulatory gap between the two institutions.
When the FSC was created, there was no question of it regulating investment banking. In the last budget, that power was taken away from the BoM and given to the FSC. What do you think was the rationale behind that decision?
It would appear from what politicians are saying that the then-minister of financial services had a meeting with the governor of the BoM and that was when it was decided to transfer this power to the FSC.
Is there any logical reasoning for the move, other than the accusations floating around?
Had this question arisen during my tenure, I would have considered it irresponsible to agree to such a transfer of power, especially given the poor reputation of the FSC. I think that giving such powers to the FSC was a very bad decision. I don’t know what happened between the minister and the governor of the central bank but I maintain that it would have been irresponsible to make such a recommendation for many reasons. You know, for any promoter to be given a banking licence, that person must be a fit and proper person. In the Sobrinho case, from what I have learnt, that individual had been a chief executive of a bank, where loans were given that turned out to be bad debts and that bank went into liquidation. So, such a person automatically cannot be fit and proper to obtain a banking licence from any respected jurisdiction.
Does that include investment banking?
Of course. If a formal or an informal application for a banking licence has been denied to a person, that means he is not fit and proper. And if he is not fit and proper for a banking licence, he is even less fit and proper to obtain an investment banking licence.
What is the difference between retail banking and investment banking in layman’s terms?
Very briefly, investment banking is about wholesale banking while banking is about retail banking.
Do both take deposits?
Yes! A retail bank takes deposits from you and me while an investment bank takes large amounts from institutions and other sources. You may want to know that the worst financial crisis in history has its roots in investment banking. This is on record. Anybody can verify that. In 2008, the problem was investment banking. So the transfer of the power of granting investment banking licences from the BoM to the FSC was irresponsible.
You seem to put the blame squarely on the back of the then-minister of financial services and the BoM governor while forgetting that the measure was part of the last budget. So should not the then-minister of finance, and now prime minister and still minister of finance, be held responsible for such a decision instead?
What is important to know is who introduced Mr. Sobrinho to Mauritius. Was it the deputy prime minister, Ivan Collendavelloo, who later defended him publicly, or was it the president? I don’t know.
From the information we have, that has not been contested until now, there was a lunch at the State House. Apparently, the governor of the BoM and Álvaro Sobrinho together with Vishnu Lutchmeenaraidoo (Ed- the then minister of finance) and Ameenah Gurib-Fakim ate together and talked together…
That for me raises several questions. I think a governor, before accepting any invitation, normally enquires about those who will be present at that function. If he is not happy with the invitees, then normally he would decline. There are many grey areas in this affair and many questions. For example, who made the recommendation, or started negotiations to transfer the power of issuing investment banking licences from the BoM to the FSC? The second question is: Who introduced Sobrinho to Mauritius, was it the deputy prime minister or the president? These are the questions we need to ask and all the people involved should be accountable.
What do you make of the silence of the president?
We all know what silence means, so I am not going to elaborate on that. But any respected individual, more so those in important posts, have a duty to give explanations to clear the air. What has been happening here over the past few weeks has affected our reputation worldwide. I am flying to the UK in a few days, and I am worried about how I will be able to sell my country to the people I’ll be meeting. We are talking about the reputation of the highest office in the country. That is serious.
Who is at fault? According to Collendavelloo, if the press had kept silent, the reputation of the country would have been intact.
Personally, as a Mauritian who believes in good governance and transparency, I think the press has done an excellent job in uncovering this can of worms. History will judge the transparency of those individuals who are at the root of this mess and what they decide to tell us.
The BoM issued a communiqué whose timing created much confusion and people started questioning the press. Can you tell us what the communiqué means and what it doesn’t mean?
I think the communiqué created more doubt. The question we should ask is why did the BoM not issue a communiqué within 24 hours after the issue was raised and by a minister on top of that?
What kind of doubt? The communiqué specified that Sobrinho did not apply for a licence and did not therefore have an application for a licence rejected. Isn’t that end of the story?
No, I think to complete the story, we need to know what discussions took place at the State House amongst the people present there. Unless we know the contents of those discussions, we cannot know the conclusion of this book.
As a former governor of the bank, can you explain to us the normal procedure to obtain a banking licence from the BoM? Suppose I am an investor seeking a banking licence, do I just put in an application for a licence and wait for the bank to decide to grant it or reject it. Or are there prior discussions where I would gauge my chances of getting that licence?
To be fair, I think you would sort of try to get a feel from the central bank about whether you have a chance to get it.
Through some informal discussions. In May 1997, the government applied for a licence to open a new cooperative bank and I rejected the application. I did not approve the licence because the business plan was completely flawed and unsustainable. If the central bank can refuse the government a licence, do you realise the power that an independent central bank, with an independent governor and a prime minister that lets that bank function independently can be?
Who was the prime minister at that time?
Dr. Navin Ramgoolam. He never questioned my decision, I must say. There was some brouhaha over the decision but he never interfered in the matter.
Is it the same now?
Now, unfortunately, we are still in a state of confusion not knowing who is responsible for what. I cannot as a taxpayer and a citizen, agree that a minister, deputy prime minister or even the prime minister, comes and gives a certificate of morality to anybody, still less a foreigner. That is a matter for institutions to decide, not the president, prime minister or deputy prime minister!
Talking about the deputy prime minister, his statement was that he had spoken to Sobrinho and that the latter told him that the money was clean. The minister mentor said that 90% of the allegations were false. What do you think of reactions like that when there has been no enquiry yet?
When a politician says ‘clean’, that can have many meanings. From the research I have done, Sobrinho’s father had a bakery and that’s where it all started.
Are you saying that the money cannot possibly be clean?
I cannot say it is not clean, but neither can I say that it is clean, for sure. That is for institutions that we have in the country to decide.
But the FSC said that they had made their enquiries and based on their research, they allocated the licence…
With the poor record of accomplishment of the FSC, can we believe what it is saying? I have my doubts about what the FSC has been doing and what it is doing. How can we have a financial secretary as chairman of the FSC? How come one of the advisers of the then minister of good governance is on the board of the FSC? Is that credible? We are mixing everything and creating confusion everywhere. Where does the government start and end? Where does the freedom and independence of institutions begin and end? All the lines have been blurred.
Whichever way we look at it, the decision to take away powers from the BoM and shift them to the FSC still rests with the finance minister. There is no getting away from that, is there?
I suppose it rests with the whole government. Before the budget is voted, it has the approval of the cabinet. But it is the minister of finance who presents it and the two most powerful people in deciding what goes in the budget are the finance minister and the prime minister. At the time of the budget, I did comment on that particular issue and said that the decision was wrong. There are doubts about this transfer of power and I still maintain that such a move was not a responsible one.
Was it calculated?
I don’t know.
With the benefit of hindsight?
According to the events that have happened, there are so many grey areas: Who met whom, what did they discuss? There are no notes and minutes for lunches and dinners. The lunch was hosted at the highest office of this country, so we need clear explanations.
When you say explanations, do you mean an enquiry?
Why not? If you don’t have anything to hide, why not be transparent? We should in fact have an Official Transparency Act in place of the Official Secrecy Act.
The attitude of those in power seems to be consistent: Every time a scandal breaks out, they keep quiet and wait for the following week when another scandal breaks out and makes you forget the previous one. Is that the impression that you get?
A new scandal kills its predecessor, and all these will come up in the next electoral campaign. Mauritians are not fools. What they did in 1982, in 1995, in 2000 and 2014 can be repeated and what is unfortunate is that our politicians don’t seem to be learning the lessons they should learn.
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