Identifier
Created
Classification
Origin
07NAIROBI1026
2007-03-05 07:41:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Nairobi
Cable title:  

Kenya: New Central Bank Governor Appointed

Tags:  ECON EFIN PGOV KCRM KE 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHNR #1026 0640741
ZNR UUUUU ZZH
P 050741Z MAR 07
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC PRIORITY 7953
INFO RUEHXR/RWANDA COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
UNCLAS NAIROBI 001026 

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, EB/ESC/TFS
JUSTICE FOR AFMLS, OIA, AND OPDAT
TREASURY FOR FINCEN
TREASURY FOR VIRGINIA BRANDON

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KCRM KE
SUBJECT: Kenya: New Central Bank Governor Appointed

Ref: 06 Nairobi 4421

Sensitive-but-unclassified. For USG use only.

UNCLAS NAIROBI 001026

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, EB/ESC/TFS
JUSTICE FOR AFMLS, OIA, AND OPDAT
TREASURY FOR FINCEN
TREASURY FOR VIRGINIA BRANDON

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KCRM KE
SUBJECT: Kenya: New Central Bank Governor Appointed

Ref: 06 Nairobi 4421

Sensitive-but-unclassified. For USG use only.


1. (SBU) Summary: Kenya has appointed a new Central Bank Governor,
academic Njuguna Ndung'u. The 48-year old economic professor
appears to have the credentials to run the Central Bank of Kenya
(CBK) effectively, and also has a reputation for integrity. That
said, in an election year, he may face pressure to alter policy - or
worse - as the incumbent administration scrambles to fund its bid to
stay in power. End summary.

New Hand at the Helm of CBK
--------------

2. (SBU) President Mwai Kibaki named Njuguna Ndung'u, a fellow
ethnic Kikuyu, to a four-year term as CBK Governor, effective March
4, 2007. Ndung'u takes over the job at an interesting moment. He
replaces Jacinta Mwatela, the CBK Deputy Governor who had been the
CBK's Acting Governor since April 2006 following the suspension of
then-Governor Andrew Mullei on charges of nepotism. Mullei's
suspension followed his recommendation to Minister of Finance Amos
Kimunye to close Charterhouse Bank on suspicion it was involved in
massive money laundering operations. Acting Governor Mwatela
pursued the Charterhouse scandal and succeeded in having the bank
closed (reftel for background, septel for update). Meanwhile, the
case against Mullei remains in court and his four-year term ended
March 1, providing the Government of Kenya (GOK) with an opportunity
to appoint a new Governor to replace him.

New Governor Has Good Credentials
--------------

3. (SBU) Ndung'u comes with good substantive credentials, and has a
track record of advocating for market-based economic reform. He is
currently the Director of Training at the African Economic Research
Consortium (AERC),whose mandate is to enhance the capacity of
locally-based researchers to conduct policy-relevant economic
research. The 48-year old Ndungu is also an Associate Economics
Professor currently on leave of absence from the University of
Nairobi. A long-time researcher, Ndung'u holds a doctorate in
economics from the University of Gothenburg, Sweden, and master's
and bachelor's degrees in economics from the University of Nairobi.
He has published extensively on external debt, financial
liberalization in Anglophone Africa, structural adjustment,
employment and labor market issues. He worked as Regional Program
Officer for the International Development Research Centre (IDRC) of
Canada. Ndung'u has also worked short stints at the IMF, the World
Bank and the Economic Commission for Africa.

CBK's Good Track Record Should Continue
--------------

4. (SBU) Further, Ndungu enjoys a good reputation for honesty and
integrity. He is also fortunate to be taking over the CBK at a time
when the economy is growing at around 6% per year, and when the
country's monetary and fiscal policies are fairly stable. Although
overall inflation is relatively high, underlying inflation is close
to the 5% target, interest rates are relatively low, and the GOK is
collecting sufficient tax revenues to finance recurrent and cover
most development expenditures. Combined, these factors should mean
less political pressure on the new CBK Governor, and it is hoped he
will continue a trend towards greater CBK professionalism and
independence begun under Mullei and Mwatela.

Comment
--------------

5. (SBU) That said, it is an election year in Kenya, and if history
is any guide, the CBK and its Governor may face political pressure
to loosen monetary policy - or worse. Under Kibaki's predecessor,
the CBK actually printed extra money to finance the then-ruling
Kenya African National Union (KANU) party's campaign, and the
resulting destabilization of monetary and fiscal policies took
almost a decade to bring under control. Kenya has changed in good
ways since then, and we think it's less likely that the CBK could be
manipulated to print and steal its own currency. And if it did, it
would be less likely to get away with it in the current environment
of greater openness and transparency. But the markets and the
political pundits will be closely watching the money supply
statistics in the coming weeks. They will also be watching Ndung'u
for clues about how he will lead the CBK. Our hope is that he will
use his new position to continue to strengthen the CBK's
independence and competence.

RANNEBERGER