Q&A > Pierre Laporte - Governor of the Central Bank of Seychelles
| February 2nd, 2012
The Report Company: You have been governor of the Central Bank of Seychelles since November 2008, but prior to that, you were at the IMF as an economist from 2002 until becoming their resident representative in Niger from 2005. What knowledge and experience from your previous IMF roles have you been able to bring to your current role?
Pierre Laporte: Basically, I could appreciate the right things that needed to be done. Many people in Seychelles knew that things were not right but it was difficult because the problems were so serious that any change would affect people in a very profound way – and it did – but the longer you leave a problem, the harder it is to deal with.
During the reform process in Seychelles we were doing the same kinds of things that the IMF is doing, so to have been part of the IMF for 7 years and to now find myself sitting on the other side of the table gave me a better understanding of the process and enabled me to communicate to people and guide the Minister of Finance.
People always associate the reform process directly with me because I came from the IMF but everyone did their bit. At the end of the day it’s always up to the people, because despite what we did, if the public was not on board, it didn’t happen.
TRC: Having to turn to the IMF often spells pain for a country, but Seychelles appears to have undergone an almost miraculous recovery. What have been the key ingredients that have produced these results?
PL: Although things are better now, it was very painful for the country and the people, as the reforms involved a lot of fundamental change in the way things were done and what people were getting. Prior to 2008, Seychelles was a welfare state. Today, we still have that safety net in place but now there’s a different mentality and things are done differently.
From day one of the reforms, the President went on TV and said to everyone, “This is where we are, we can’t go on like this and tomorrow morning we’re going to have to get up and do certain very hard things. It’s going to be hard on us but there’s no other way.”
The reforms were communicated very well. The reform programme itself was rightly conceptualised because it addressed the fundamental problems. Again, there was a lot of pain because 17% of the labour force in the public service was cut, all the subsidies on fuel were removed overnight and the exchange rate change brought in 60% inflation. Then we tightened fiscal and monetary policy and started to see the results. It turned out quite fast; we had expected inflation to come back down to single digits within 9 months. This actually occurred in just 3 months. Things happened quickly and it was easier to sell to the public.
TRC: GDP grew by 6.7% in 2010 and is expected to rise another 5% this year. You’re aiming for public debt to shrink to 50% of GDP by 2017. Are you still on track to meet these targets?
PL: The policies are on target. We have restructured our external debt and reduced it by about half; only India is left to sign the agreement with us for this. The big one for us is domestic debt, but by running a surplus on the budget we have managed every year to use part of this saving to pay down the debt and we’ll continue running a surplus until it’s paid.
TRC: There are three main pillars of the Seychellois economy: tourism, fisheries and then the financial sector. As the chief overseer of the latter, what policies are you implementing to increase levels of transparency and manage the emergence of the sector?
PL: From a policy perspective, we now have a market-based economy so we are able to introduce instruments that weren’t available before. Previously, we had no monetary policy, it was a case of the government simply spending money it didn’t have - which is what got us into trouble. Now we monitor the markets every day. When there’s excess liquidity we have instruments which enable us to mop it up and when there’s a lack of liquidity we also have tools to deal with that. However, from the development aspect, we feel that the banks need to work harder. Technological change is driving financial services and in my view the banks here are not doing enough - the quality of services and the level of modernisation is just not there. To push this, we are driving things in terms of our internal processes; for example we have implemented structural processing from the treasury, which means you can send messages electronically to the Central Bank to send money via electronic channels. We’re also automating cheque clearing. What we would like is to have three or four more banks to come and bring innovation.
TRC: What are the competitive advantages of the Seychellois financial sector over, say, that of Mauritius?
PL: We are very similar. Mauritius actually moved faster than us because they have always been a market-based economy, whereas we were under a socialist system, which put us back a little. I think the advantage we have here is in the offshore sector. Things are done much quicker and much more efficiently than in other places and investors who come here tell us that our legislative framework is better than that of Mauritius.
We are currently going through a process of setting up a stock exchange with a private operator. We need good institutions, good banks, good household names. We already have Barclays but we need a few more. I think the stock exchange should spur that on.
TRC: In terms of international investor perception, how do you manage your reputation given the often negative connotations associated with offshore jurisdictions?
PL: I can assure you that we take this very seriously. The OECD is now going to all offshore centres and saying that we have to have exchange agreements with everyone. They’ve come here and looked at all the laws and advised us of what we need to do in order to be compliant. All this work has been done but unfortunately parliament was dissolved following the presidential elections and we’d just been caught up by the absence of parliament. However, all of these amendments are going to go through by the end of 2011.
We take the money-laundering issue very seriously. Our financial intelligence unit is very tough on crime and very efficient. Anti-money laundering is a top priority for us because we can’t afford to have this kind of activity. We’re a small financial centre, the minute people don’t trust what you’re doing, it’s over. We have to get this right.
TRC: What key opportunities do you see for cooperation and collaboration between the UK financial sector and Seychelles?
PL: A lot of funds are flowing from Asia into Africa today and there are banks that come here and set up as offshore banks, which is one of the biggest segments of the banking industry today. It’s a platform for them to do business outside. We can be a stepping-stone between the continents. China is looking very seriously at Africa, which today has the highest return on FDI and we believe we could serve as a gateway to Africa for the Indians and the Chinese.
TRC: What plans do you have to manage shareholder confidence in the finance industry?
PL: We will have a first generation credit information system in place in January 2012. Later we will probably invite a private operator to build a fully-fledged credit agency that will hook up with the utilities and telecoms. This will again modernise the financial sector, build shareholder confidence, build more ability for banks to assess risks and also educate people.
TRC: Going back to the economic reform, when the IMF came here in October they were optimistic about the country’s progress. Public debt is set to decrease to about 76% of GDP by the end of this year. However, as an open economy, how are you insulating against imported shocks?
PL: We import all our fuel and we import over 90% of everything we consume so we are at the mercy of the international markets. The government last year set up a stabilisation fund that helped to subsidise fuel and utilities but going forward this will not happen because of our strategy to run a surplus to pay down the debt. It’s going to be very difficult, but the best way to do it is just to get your policies right. One thing we’ve learnt from the past is not to spend beyond our means.
In addition, we have potential oil reserves that are being explored as a possibility. However we’re not having a party yet - we have to prepare because we don’t want to be like continental Africa, where oil becomes a curse.
TRC: What would be your key message to the international investor community?
PL: Seychelles is a country that has shown that if you have the right policies in place you can go a long way. Unlike continental Africa we don’t have exchange controls, there’s a very good regulatory framework across the board, we have strong financial intelligence and people can come here feeling that there is a good policy environment. The tax system is being modernised, it’s a very safe country and the infrastructure in place is adequate so we really feel that all the ingredients are in place for somebody to come and make the most of their investment.
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