Governor under a cloud even before he starts role

If you were Paschal Donohoe, you would need news like this like a hole in the head.

Governor under a cloud even before he starts role

If you were Paschal Donohoe, you would need news like this like a hole in the head. After a pretty bruising term, where he has been savaged by the Irish Fiscal Advisory Council (IFAC), has seen overruns on the National Broadband Plan and the Children’s Hospital, and has had to endure strikes by nurses and support staff, Donohoe has had a lot on his plate.

But the one area where he surely did not see any potential danger was the appointment of his new Central Bank governor. Donohoe, a reformer, was keen to avoid slipping back into the old ways of merely appointing his secretary general to the post, as was custom and practice up until the crash a decade ago. Instead, after an exhaustive search which cost €70,000, he plumped for a foreigner with a wealth of experience.

In picking New Zealander Gabriel Makhlouf, Donohoe was seeking to send a statement of intent at a time when the international economic waters are looking less favourable to us. Makhlouf is the outgoing treasury secretary and chief executive of the New Zealand Treasury, and the New Zealand government’s chief economic and financial adviser.

He formerly worked in the Treasury in London and has held international roles at a senior level. On paper, he is eminently qualified, Donohoe argued.

On the day his appointment, at Donohoe’s behest, was approved by Cabinet on May 1, we were told he was chosen after “a rigorous and comprehensive international process, which included a public call for expressions of interest, online and media advertising” was conducted.

Merc Partners were appointed to manage both expressions of interest from the public call, and directly approach potential candidates on a global scale throughout Europe, America, and Australasia.

Given what has happened, was that money well spent?

Donohoe said the interview panel “undertook a thorough and detailed shortlisting exercise before interviewing candidates” and Makhlouf was the panel’s recommended candidate. But almost instantly, a problem arose. And a pretty serious one at that.

On May 30, it emerged that Makhlouf was under mounting pressure to resign in his final weeks as head of the New Zealand Treasury. It was reported that Makhlouf, 52, was at the centre of a controversy involving leaked budget details, when he claimed his department had evidence it was the subject of a deliberate and systematic hack. The department suffered 2,000 attacks on its system within 48 hours, he said.

The police, who were called in to investigate, now say there is no evidence of illegal activity, and they have indicated that the department’s web search tool was used to access the embargoed information.

The most vocal demands for Makhlouf’s resignation came from the leader of the New Zealand opposition National Party, Simon Bridges, who called the secretary of the treasury’s position “untenable,” alleging a

cover-up at the department “to hide... incompetence”. New Zealand’s finance minister, Grant Robertson, said he was “disappointed” in the Treasury, but stopped short of calling for resignations.

Despite the controversy, Donohoe stood by his man, as he had to, given he had staked his reputation on him. There were calls here, by Labour’s Joan Burton, for the appointment to be paused, by Labour’s Joan Burton, but it quickly emerged that the appointment can’t be unwound.

This is because the Central Bank governor is appointed by the President and can only be removed if a “grievous” mistake or error is found to have been made. The bar is set so high to bolster the independence of the office of governor in the face of possible political interference.

But then on Thursday, a report into the affair was published and was damning of Makhlouf’s handling of it. Absolutely damning. The inquiry found that Makhlouf failed to take responsibility for the leak of sensitive budget information last month, and fell short of expectations in how it was handled.

The New Zealand government had ordered an investigation into the handling of the early access and leak of sensitive budget information from the Treasury’s website. Police dismissed Makhlouf’s claim that the website was “deliberately and systematically hacked”, saying nothing illegal happened. It was later revealed that the National Party uncovered the budget details using the website’s search function.

“The breach of security around the budget documents should never have happened, under any circumstances,” State Services commissioner Peter Hughes said in the report. Hughes went much further and gave Makhlouf a good kicking.

“The right thing to do here was to take personal responsibility for the failure, irrespective of the actions of others, and to do so publicly. He did not do that,” he said.

The investigation, however, concluded that Makhlouf’s decision to refer the matter to the police was made in good faith. There were also no grounds to support allegations that Makhlouf’s public statements or actions were politically biased, Hughes said.

“It was a clumsy response to a serious issue and is not what I expect of an experienced chief executive,” he said.

Ouch. Despite the kicking, Donohoe again backed his Central Bank appointment in public. Behind the scenes, he spoke to Makhlouf on Thursday in the wake of the report’s publication, and the gravity of the situation from an Irish perspective was made clear. The Government has been forced into defending a guy they don’t know at all before he has even started his job.

Because the process can’t be unwound, ministers are caught in a bind, defending their decision to appoint a man who has a major question mark over his judgement.

Added to this are concerns over Makhlouf’s lack of Central Bank experience and his ability to mix it in the highly snooty, snobbish atmosphere on the governing board of the European Central Bank (ECB).

Ireland has been well served in recent times with Philip Lane and Patrick Honohan, and their stock at ECB level was exceptionally high. Lane, in particular, is regarded not only as one of Ireland’s top economists, but as one of Europe’s top economists.

Makhlouf is not seen as being of the same calibre as his two immediate predecessors in terms of his grasp on monetary policy and this could become an issue should Ireland face difficulties post Brexit. The bigger consideration is that should he find himself in controversy in his early tenure, the criticisms of Makhlouf from New Zealand will be ringing loudly in all our ears.

Donohoe and all on the Government side have conceded this is an episode that shouldn’t have happened but in the round, Makhlouf is well-qualified and up to the job.

At €260,000-plus a year, Makhlouf will be very well remunerated for the job he has been given, but he arrives in Ireland under a cloud and amid growing rumblings as to his capabilities. One gets the sense that if the Government could dump Makhlouf they would, but, as they can’t, we are now stuck with him.

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