The opening excerpts to the Bank of Mauritius Act 2004 (the “Act”) with respect to the establishment of the central bank (at section 3) portrays “a body corporate of perpetual succession”. It is provided that the central bank is capable of entering into contracts, of acquiring, holding and disposing property, whether movable or immovable and of suing and being sued.
One must be mindful that the legislator intended that the seemingly wide powers of freedom enjoyed by the central bank, would be distinguishable to the liberties enjoyed by private companies. Accordingly, the spectrum of the Companies Act 2001 regime bears no application on the central bank.
Of course, this demarcation is designed to arise in the furtherance of its objects which are spelt out as being to maintain price stability and to promote orderly and balanced economic development. Other objects of the central bank include the following (at section 4(2)):
- regulate credit and currency in the best interests of the economic development of Mauritius;
- to ensure the stability and soundness of the financial system of Mauritius and
- act as the central bank for Mauritius
It is understood that an unescapable guiding principle of the good governance of a central bank lies in its independence. In the face of constant and overt blitz by Governments to influence the sanctity of this independence in the prudential oversight of financial systems; the appearance of the word “independence” only once in our Banking legislation, is deceptive.
Little solace can be found in reading section 3(3) of the Act which deploys the single use of the word “independence” in a broad-brush manner: “… in furtherance of its objects, the central bank shall perform its functions independently.” The equilibrium intended to be achieved by the legislator in adhering to the regime of a central bank that is independent from nefarious external pressures like those from Government remains a fragile one.
Of late, this was seen with respect to the business activities of the Mauritius Investment Corporation (“MIC”). From its Inaugural Report (at p. 14 onwards), the MIC was originally set up in the context of the Covid-19 pandemic and established to be fully in line with the Bank of Mauritius’ mandate. The sole shareholder and owner of the MIC is the central bank. The funds from the central bank of Mauritius hence forms the capital of the MIC.
Notably the MIC is portrayed as follows, “the MIC has been established with a world-class governance structure and complies with international management norms that promote ethical awareness and transparent management”. There arises an incestuous confusion between on one hand the cursus of the central bank in regulating economic development; and on the other, the object of its subsidiary, the MIC, in accelerating economic investment of distressed economic operators (i.e. privately owned companies in Mauritius). Whilst the funding of the MIC was enabled through the legality of the mechanism of section 6(1)(y) of the Act which compels assent to be given by the Minister of Finance:
‘(y) with the approval of the Minister, subscribe to, hold and sell shares of, provide capital to or invest in, any corporation or company set up for the purpose of facilitating economic development.
It is innocuous to ask in the circumstances how the Board of the MIC has proceeded in the determination of the allocation of source funds from the central bank where the legality of the mechanism rests under the wide umbrella of “facilitating economic development”. The moreso considering the MIC was set up in the context of a pandemic and the ‘covid period’ applied. Would the opportunity for “facilitating economic development” still permeate the economic context of the recovery that preceded Covid? Surely, if an economic operator has surmounted the distress suffered by the pandemic, it cannot still go on to enjoy the financial surplusage furnished during the pandemic if the growth in its industry or sector is back to pre-Covid numbers. Therefore, it is quite spurious how the allocation of funds from the MIC would have happened considering the starting point was that most economic operators were adversely affected by Covid-19.
In conclusion, the case of the MIC, which is now the subject of investigation by law enforcement authorities sheds light on the inappropriateness of a collusion in the role of the central bank and that of any of its subsidiary. It is uncertain whether the MIC is the brainchild of the central bank or the Minister to whom the responsibility for the subject of finance is assigned. Whilst the MIC constitutes a butchery to the independence of the function of the central bank, it is important that the sense of independence and authority of the central bank is revigorated. In an ideal world, the MIC ought to be wound up and a corporate resolution ought to be put in place for recovery of the funds invested, where it would be realistic to do so. This though is not an ideal world, an any initiative to recover the funds by the MIC could end up in the well-oiled bureaucracy related to irretrievability of funds.
[This article is republished from the Temple Journal Second Edition.]
Nikhil Boolell
Barrister – (Partner / Director)