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Explainer: Why is there controversy over the new Central Bank governor?

It all stems from a leak of New Zealand’s budget earlier this year.

YESTERDAY, IT EMERGED that the soon-to-be governor of the Central Bank, Gabriel Makhlouf, had written a letter to the Minister for Finance, Paschal Donohoe. 

That in itself might not be very unusual – but it was to tell Donohoe that he fully agrees with the findings of a probe into how Makhlouf himself handled a recent controversy in New Zealand.

But what was that controversy, how did it involve Makhlouf, and what stage is it at now?

Let’s take a look.

Who is Gabriel Makhlouf?

In May, Ireland named the new bank chief who would head up the Central Bank of Ireland – which is facing into a turbulent time due to Brexit. 

The vacancy arose after the incumbent Philip Lane was appointed to the executive board of the European Central Bank.

The governor of the bank is the person who oversees the whole operation – it’s a major job, and so they are appointed by the President of Ireland on the advice of the Irish government. Previous people who held the role include TK Whitaker. The Central Bank itself is responsible for central banking and financial regulation in Ireland.

The Central Bank hasn’t been without controversy before – for example, following the banking crisis it emerged that a number of Irish bank CEOs were asked to follow a “green jersey agenda” when it came to the facts of the banking system and the issues it was experiencing.

The new chief was named as Gabriel Makhlouf, Treasury Secretary for New Zealand. He would be the first non-Irish governor of the Central Bank, and is due to take up the role in September – one month before Britain is due to leave the EU.

At the time, Donohoe said he was “delighted to nominate a person of Gabriel Makhlouf’s international calibre”. Makhlouf had worked at the OECD in Paris and under the then-British finance minister Gordon Brown, (who went on to serve as prime minister from 2007 to 2010).

Makhlouf had been appointed chief executive and secretary to the treasury of New Zealand in 2011.

The budget leak

Just weeks after Makhlouf was named the new Central Bank head, it was announced that a “systematic” and “deliberate” cyberattack was behind a leak of secret finance documents ahead of that week’s New Zealand budget announcement.

Makhlouf, as Treasury Secretary, said that he had referred the matter to police on the advice of intelligence services. 

Makhlouf said hackers attacked government systems 2,000 times over 48 hours in a partially successful attempt to obtain documents relating to the budget before its release.

“Somebody managed to penetrate and get some information, not the whole budget,” he told Radio New Zealand at the time.

He also dismissed “absolutely” suggestions from the opposition National Party, which published the leaked budget details, that the data was released accidentally by Treasury staffers.

“What I do have are these multiple, persistent, systematic, deliberate attempts to access our systems,” said Makhlouf at the time.

Makhlouf said the department was treating the security breach extremely seriously.

National Party leader Simon Bridges refused to say where the information he published came from but denied his party was responsible for any hacking.

Though the information released was described as “mundane”, it included increased foreign aid and defence spending, as well as the establishment of a Mental Health and Wellbeing Commission.

Not what it seems

But just two days later, red-faced officials admitted that the security breach was due to an online ‘bungle’ and not a sophisticated cyberattack.

Makhlouf had to release a statement contradicting his earlier comments, and say:

“On the available information, an unknown person or persons appear to have exploited a feature in the website search tool but… this does not appear to be unlawful.”

He said Treasury prepared a “clone” website ahead of the Budget’s release but did not realise that entering specific search terms on it revealed embargoed information.

Makhlouf said an inquiry would be held to ensure such a breach was not repeated.

Simon Bridges called for Makhlouf’s resignation, saying the Treasury boss knew about the bungle days before it went public because his department fixed the website bug before police were called in.

He accused Makhlouf of sitting on the information.

“Clearly his position is not tenable,” Bridges told reporters.

Finance Minister Grant Robertson, the minister responsible for the budget, declined to publicly back Makhlouf, who was due to leave his position the following month.

“I am… very disappointed that the Treasury did not seek to find more information as to how this happened before referring the matter to the police,” he said in a statement.

Inquiry

Almost immediately, there was reaction in Ireland to the news. The Irish Times reported that Philip Lane and Patrick Holohan, both former governors of the Central bank, raised their concerns about the controversy. In addition, Sinn Féin’s finance spokesperson Pearse Doherty asked Donohoe to re-examine the appointment, writing a letter to the minister on the issue. 

An inquiry was held into the security bungle, and its report was released in late June. 

In the report, New Zealand’s State Services Commission (SSC) chief Peter Hughes had some harsh words for Makhlouf:

I have concluded that Mr Makhlouf failed to take personal responsibility for the Treasury security failure and his subsequent handling of the situation fell well short of my expectations.
Mr. Makhlouf is accountable for that and I’m calling it out.

But the SSC found Makhlouf acted in good faith when he first described the leaks as a hack and he had shown no political bias against the opposition that released the information.

However it found he was less forthcoming after receiving updated advice about the nature of the leaks and continued to imply the problem was a hack, rather than a treasury mistake.

Hughes said it would be meaningless to punish Makhlouf when he was leaving anyway, but the bureaucrat’s reputation had been damaged by his failure to handle the leaks properly.

Hughes also said he was disappointed Makhlouf had declined to appear publicly to express regret over the affair.

Good faith

What did Makhlouf have to say?

He released a statement after the report’s release apologising that budget information was not kept secure.

“The report confirms I acted at all times in good faith and with political neutrality. It also confirms that I acted reasonably, other than in my descriptions of the incident,” he said.

I am pleased that my honesty and integrity are not in question.

Naturally, the Irish government was asked about its opinion on Makhlouf given all that happened.

At the time, Minister Donohoe expressed confidence in the “integrity” and “political neutrality” of Makhlouf, but said he wished that the “incident” had never happened. 

It also emerged that Makhlouf travelled to Ireland last month, and met Donohoe when he was in Dublin to meet Central Bank staff, the Independent reported. 

Now we know that Makhlouf appreciated Donohoe’s support. In the letter published today by the government, he told Donohoe:

“I am a dedicated and committed public servant and am looking forward to starting my role as governor and having the honour of serving the Irish people, working with my team at the Central Bank.”

The letter was sent on 15 July. In it, Makhlouf acknowledges that what happened was a “serious matter” and details some of what the investigation found. He says he has reflected on the conclusions and agrees with them in full.

“In hindsight,” he writes, “I accept that I could have described the incident more clearly and with a different emphasis. I was pleased that my honesty, integrity and political neutrality are not in question.”

He will take up his new role in September.

- Additional reporting AFP

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