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I didn’t comment on the controversy caused by the financial section of the #UN Panel of Experts (PoE) report on #Yemen published on 29 Jan until I get a chance to go through it in detail.
Now that I have done so, I am very disappointed and equally concerned that such poor quality is passed by a UN panel without regard to the consequences and repercussions of such report. https://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/S_2021_79.pdf
I am referring specifically to the accusations of corruption, money-laundering, and elite capture levelled in the report against the Central Bank of Yemen (CBY), Yemeni Government (GoY), and food importers in Yemen with regards to the Saudi deposit.
I cannot comment on other sections of the report as I haven’t studied them.
In the following threads, I'll highlight the main arguments made by the PoE, & the significant methodological flaws, wrong data, and incoherent logic leading to sweeping and blanket statements with severe repercussions on food security and the humanitarian situation in #Yemen
Needless to say, I am in no way attempting to defend GoY, CBY, or food importers. Those who know me know I’m a big critic of the shameful lack of transparency, accountability, good governance and leadership by the government.
Food importers (especially HSA) are more than capable of speaking for themselves. I am simply provoked as a Yemeni by the seemingly callous handling of such delicate issues by the PoE report.
The report section on the Saudi deposit makes 3 main arguments: 1- that CBY/GoY “illegally” sold foreign currency to food importers below market rate in violation of the law,
2- that these preferred rates were not reflected in food prices and market exchange rates (report concludes this = corruption and money-laundering), and 3- that HSA group was the main beneficiary (48%) of the Saudi deposit (report concludes this = elite capture).
I will address each argument separately in this thread.
On 1st argument, it was a well-known fact (and a public one) that CBY provided food importers with a preferential exchange rate for imports supported by the Saudi deposit, as part of its stated monetary policy to manage the exchange rate.
The PoE state that such policy violates “a number of Articles in the Central Bank Law No. 14 of 2000 and the provisions of Law No. 21 of 1991 regarding the CBY”.
It is strange that the report refers to law no 21 of 1991, which was overridden and revoked by law no. 14 of 2000.
It is strange that the report refers to law no 21 of 1991, which was overridden and revoked by law no. 14 of 2000.
It seems the PoE somehow dug out a very old and outdated law to argue and quote an article that states the CBY is to “achieve largest possible return from dealing with highly rated banks in order to obtain the highest possible return while observing the safety factor”.
First of all such an article is not in the current law of 14/2000 (and I’m not sure it is in the 1991 as there is no online version available of that law!).
Second of all the quoted article refers to the CBY making deposits with highly rated banks and obtaining returns, which is irrelevant to the issue at hand which is using foreign reserves of CBY to manage the exchange rate in Yemen.
The PoE argues that the mandate and role of central banks are to be profit-making institutions for their governments.
This is firstly not the mandate and role of the CBY as per law 14/2000 which specifies “the main objective of the bank is to achieve price stability and preserve that stability and provide adequate liquidity to create a stable financial system based on market mechanisms”.
Law 14/2000 in articles 2, 23, and 47 clearly requires the CBY to design the foreign exchange regime in consultation with the GoY to achieve price stability (and not maximise profits).
Secondly, even if we accept this blanket definition of central banks’ mandate proposed by the PoE, surely this does not apply in a conflict situation such as Yemen.
The fact of the matter is that CBY and GoY adopted, WELL WITHIN THEIR LEGALLY-MANDATED RIGHTS, AND NOT IN VIOLATION OF IT as the PoE suggests, a policy of subsidising food prices by offering preferential exchange rates to food imports.
We can definitely debate whether this is the best policy approach to help Yemenis and especially the most in need, and whether it was implemented in the most effective way. I personally argued against such blanket subsidy in multiple meetings and fora.
Others argued for it given the lack of capacity in government to implement any targeted support programs.
In the end, CBY and GoY consciously decided to adopt such policy, which contradicts the PoE statement that “CBY in Aden is clearly not acting in the best interests of the GoY in this case.”
A report of a panel established pursuant to UNSCR 2140 (2014) is surely not the platform to evaluate such policy or its implementation. Even if it was, the report actually failed to present any credible analysis of the implementation of the policy as I will outline below.
I won’t spend too much time on the numbers reported by PoE on the spread between CBY and market rates, as the main point as I explained above is that this was indeed a policy decision by the GoY and CBY
but I’d be happy to point anyone interested to multiple errors and inaccuracies in the data presented in the report on this matter.
