22 August 2002

New Governor of Reserve Bank

The Secretary to the Treasury, Dr Alan Bollard, is to be appointed the next Reserve Bank Governor, Finance Minister Michael Cullen announced today.

Dr Bollard was nominated by the non-executive directors of the Reserve Bank Board and the nomination has been accepted by the government.

“Although I am obviously very pleased that the Board has chosen someone of such high ability, it was with mixed feelings that I accepted their recommendation because it means I will lose Dr Bollard as Secretary to the Treasury,” Dr Cullen said.

“He has been enormously successful in changing the culture of the Treasury into a more open and outward looking organisation and was always a pleasure to work with.”

Confirmation of Dr Bollard’s appointment will be subject to the conclusion of a contract of employment and to the negotiation of a new Policy Targets Agreement. The government wants monetary policy outcomes to move closer to those of Australia.

“I am confident Dr Bollard and I will be able to negotiate a PTA which is satisfactory to each of us and to the broader financial and business community and which will serve New Zealand well,” Dr Cullen said.

Dr Bollard was appointed as Secretary to the Treasury in February, 1998. He was Chairman of the New Zealand Commerce Commission from 1994 and before that, was Director of the New Zealand Institute of Economic Research – a position he held for seven years.

He has also worked as an economist in a variety of positions in Britain and the South Pacific.

Attached: Details about the appointment process.

The Appointment Process and the Reserve Bank Act 1989
Vacancy in the office of the Governor or absence of Governor
Section 48 (1) of the Act explains, “If the office of the Governor becomes vacant, the Minister shall, on the recommendation of the Board, appoint
(a) A director of the Bank; or
(b) An officer of the Bank; or
(c) Any other person to act as Governor for a period not exceeding 6 months”.

Section 47 provides that if the Governor is absent the Deputy Chief Executive (DCE) shall have all the duties, responsibilities and functions and powers of the Governor. If an appointment has been made, but the appointee is not be able to commence in the position within the six month period then the Governor would be “absent” until s/he took up the position and the DCE could operate the Bank.

Policy Targets Agreement (PTA)
The primary function of the Reserve Bank is to deliver “stability in the general level of prices.” Section 9 (1) explains, “The Minister shall, before appointing, or reappointing, any person as Governor, fix, in agreement with that person, policy targets for the carrying out by the Bank of its primary function…”.

A new PTA must be negotiated every time a Governor is appointed or re-appointed. However, the PTA does not have to be renegotiated when a new Treasurer is appointed.

Section 9 also requires that the new PTA be recorded in writing, tabled at the first Board meeting after they are fixed published in the Gazette and tabled in Parliament.

Section 9 (4) of the Act specifies that the PTA can only be changed by agreement between the Governor and the Treasurer, so unilateral changes to the PTA cannot be imposed on either side.

Conditions of employment of the Governor
Section 40 (1) states “There shall be a Governor of the Bank who shall be appointed by the Minister on the recommendation of the Board.

Section 42 states:
(1) “The Governor shall be appointed for a term of 5 years and may be reappointed for a further term or terms, each of up to 5 years.
(2) The conditions of employment of the Governor, including remuneration, shall be –(a) Determined by agreement between the Minister and the Governor after consultation with the Board”.

The conditions of employment must be consistent with the Bank’s functions and not prevent the Governor from ensuring that the Bank’s functions are carried out.

Section 46 sets out a range of circumstances that disqualify a person from being appointed Governor. These circumstances apply as from the date the person takes up the appointment, not the date the appointment is announced. Thus, if any potential candidate is a chief executive of a Government department they could be appointed to the position so long as the Government Department role was relinquished before the appointment is taken up.

Note that the conditions of employment need not be agreed before or at the time the Governor is appointed.

Process
In practical terms, this means the Board recommends a candidate to the Minister for the position of Governor.

If the Minister provisionally accepts the recommendation, the Minister and the provisional appointee then negotiate a Policy Targets Agreement (PTA).

The Minister and the recommended candidate, after consultation with the Board, also agree on the conditions of employment.

If the draft PTA is within the powers of the Act then the PTA is formally signed off and the Minister formally appoints the Governor.

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