I have written two columns previously on stories about what is happening in New Zealand that I would expect to see in a third world country but not here.
Piggy bank.
As someone who worked in the Reserve Bank for 22 years and was proud of the institution, I never expected to be able to add it to my list of our third-world stories. In fact, describing what has happened to the governance of the bank over the last few years as third-world is unfair to most third-world countries.
The governance saga came to a dramatic point in March when the governor, Adrian Orr, suddenly resigned. It hit the headlines again recently when the chairman of the bank’s board, Neil Quigley, also resigned suddenly. But the problems had started building up some years earlier. During the period that Adrian Orr was governor staff numbers rose from 250 to 650. In the early stages, the growth of the public sector was being actively encouraged by the then-Government. But with the change of Government in 2023, the public sector began to get down-sized.
Peter Nicholl
Somehow the reserve bank didn’t hear that message – or didn’t think it applied to them and continued add staff. This is the organisation which had been raising interest rates in order to constrain expenditure and bring inflation back within its target range.
The spending spree has been largely blamed on Adrian Orr and his empire-building. But the governance question that needs to be asked is where was the board? Did they agree or were they steam-rolled?
The bank isn’t part of the annual budget cycle. It negotiates a funding agreement with the government every five years. The latest five-yearly negotiations took place early this year. Like Oliver Twist, the bank asked for more – about $ 200 million more. But unlike Oliver Twist, the bank had not been hungry. It was in fact over-weight. The Treasury objected to the request for more and Orr resigned. The chairman said then that the departure had nothing to do with the funding negotiations.
It has now become clear that it was caused by the arguments over funding and the first arguments were within the bank. Orr and the board had different views. Despite this, the proposal the bank first put to the government was Orr’s view – a request for $200 million more and a further 100 staff. When that was rejected and Orr resigned, I was surprised by how quickly the bank’s board came up with a lower request. But it has since been revealed that this was the number the board thought was appropriate in the first place. The fact they initially went along with the request for more reflects very poorly on them.
The next few months will reveal who will be the next governor and the next board chairman. They will come into an organisation with its reputation in tatters. It is another example of the old adage that good reputations take a long time to gain but can be lost very quickly.
