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Welcome to the Central Bank Insider Archives. We are pleased to be able to provide you with this intimate look at central banking events, policies, and staff. Commentary is updated as available (generally bi-weekly) and archived monthly. The source commentary "Newsmakers" is reprinted at USAGOLD with permission and by courtesy of Central Banking Publications Ltd.
19 April 2002
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A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
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ARISE, PAPADEMOS
Now, at long last, a successor for Christian Noyer, vice president of the ECB, has been announced. European Union finance ministers decided that Lucas Papademos, governor of the Bank of Greece, was the most appropriate candidate to fill the first vacancy on the ECB's executive board since its creation four years ago. Belgium's candidate, Paul de Grauwe, will be disappointed but Papademos blushingly admitted to be "pleased and honoured" to have been chosen. Wim Duisenberg breathed a sigh of relief at the decision: "I am very happy that we have a timely proposal for the succession of Noyer." Let's hope the nomination of his own successor runs as smoothly! (Duisenberg has said he will step down in July 2003).
Papademos's nomination must still be approved by the European Parliament (on 22 April) before EU leaders confirm his appointment when they meet in Seville in June. Possibly Papademos's experience at the Boston Federal Reserve and his standing as a former MIT academic alongside Franco Modigliani tipped the balance in his favour - some say that this will put him in a good position to make European monetary policy easier to decipher for the US. Also, he is credited with being one of the driving forces behind the Greek economy's transformation allowing it to join the euro. When interviewed for Central Banking journal back in 1995 he made clear he was determined to press on with the rationalisation of the Greek economy and he has done an excellent job. He is seen as an orthodox central banker, well versed in the ECB's strategy, and unlikely to rock the boat. In short, his shining academic qualifications together with plenty of hands-on experience means that Papademos perfectly fits the template for the modern central banker.
But the proceedings did not pass by without a little excitement. There was concern that Belgium had not endorsed Papademos's appointment. Belgium's finance minister, Didier Reynders, abstained from an otherwise unanimous decision, although the Belgians have since been quick to play this down and write it off as having no significance. Alain Gerlache, a spokesman at the prime minister's office, said, "We will not block the appointment. Our decision to abstain was due to the fact that we had our own candidate. It was not meant at all to block the decision."
Cynics have alleged that Belgium only nominated Paul De Grauwe for this appointment to put down a marker for their man to succeed the Finnish ECB director Sirkka Hamalainen when she comes to the end of her term, at about the same time as Duisenburg. Even more controversially, some have been saying that Paul De Grauwe is a pawn in a longer-term game in which Peter Praet, currently a director in the Belgian National Bank, is the real candidate the Belgians hope to sit on the ECB executive board (which has six full time members).
The media leapt on the chance to invent a Belgian plot to secure a place on the ECB board, reporting that Belgium intended to veto Jean-Claude Trichet next year from succeeding Duisenberg unless a national from the Benelux countries (Belgium, Luxembourg or the Netherlands) gets a seat on the ECB board. Reynders, referring to a deal agreed in 1998 that promised France that its candidate would become ECB president before the end of Duisenberg's full term in office, said: "I do not deny that there is an agreement between Chirac and Duisenberg. I do deny that it is binding on the Belgian government There is no demand from Belgium for us to agree on the name of a candidate or the name of a country, but there is a demand that we take account of the place of Benelux in new decisions on the bank's executive committee."
But Luxembourg's prime minister, Jean-Claude Juncker, has made quite clear that "there is consensus among EU governments that a Frenchman will replace Wim Duisenberg at the helm of the ECB Neither dreaming nor wide awake can I imagine anyone would block a French candidate for the ECB presidency, or even try do so."
HIS SUCCESSOR?
Papademos's transferral to the ECB will leave central bankers in Greece deprived of their star player - so they will be looking for another to replace him. The Greek press has touted Panagiotis Thomopoulos or Nick Garganas as possible contenders. They are both currently deputy governors of the central bank. Nick Paleokrassas, a member of the central bank's monetary policy council, is a likely candidate to edge into the post of deputy governor.
ISRAEL'S GOVERNOR THREATENS RESIGNATION
The beleaguered Bank of Israel's governor Dr David Klein has made no bones about his feelings on the government's plan to enforce a rather strange and frankly unhealthy regime on the central bank. Klein has said he will have to "consider his future" if the Bank of Israel Law is revised according to the finance ministry's proposals. The plans would "change in an extreme way the reality in which the bank functions" according to Klein. The proposed changes would create a seven-member monetary panel comprised of Klein, two other central bank representatives and four outsiders.
Klein warned that the central bank would become politicised and contaminated with vested interests. In a recent speech, Klein made some damning criticisms of the proposed law. In particular, he said that the clause that would subject the bank's goal of price stability to "the policies of the government and its decisions" must be dumped. He counselled the government to shelve clauses making the central bank a mere "agent" of the government in managing the state's foreign currency reserves. Klein brushed off suggestions that the plan for a monetary council was an attempt by the finance ministry to force him to resign, noting that there was no need to destroy the bank's independence for "such a minor aim".
RUSSIAN RESHUFFLE
Continuing an incipient trend of change at the central bank of Russia after the switch of chairman last month, the bank's board of directors is to undergo a radical overhaul. Three new members, Oleg Vyugin, Andrei Kozlov and Nadezha Ivanova, have been appointed, and await only an official approval from parliament next week. Sergei Ignatyev, the central bank's fledgling chairman, made these nominations, which have been wholeheartedly approved by President Putin.
Vyugin and Kozlov will serve as first deputy chairmen, both with experience in the private sector. Vyugin is to oversee the bank's monetary and credit policy while Kozlov will be in charge of regulation of the Russian banking sector. Vyugin served previously as executive vice president of Troika Dialog investment company, although he also worked in the finance ministry from 1993 to 1999, including serving as the first deputy finance minister. Kozlov worked at the central bank from 1989 to 1999, reaching the rank of first deputy chairman from 1997 to 1999. Ivanova currently acts as director of the bank's joint economic department.
But watch out for further changes: Ignatyev has hinted that he will nominate more candidates in the near future, as there are currently five vacant seats out of 13 available on the board. It has been speculated that Duma deputy Pavel Medvedev may find himself offered a place, while the federal government and the presidential administration may also tender their own representatives for the board - possibly deputy director of the financial department of the governmental staff Anton Drozdov and deputy finance minister Sergei Kolotukhin representing the former, and director of the economic department Anton Danilov-Danilyan representing the latter. Of course, a few of the old guard will be squeezed out, and it looks like current first deputy chairperson Tatyana Paramonova may take charge of Sberbank now that its former president Andrey Kazmin has been dismissed.
FAITH IN RESERVES
A well-meaning Buddhist monk has been busy beefing up the Thai central bank's foreign exchange reserves. During the course of the last four years by his own efforts he has increased reserves by a hefty 2.4bn baht (US$55.5m). Perhaps for reasons of pride, or just plain embarrassment, the bank will accept no further payments from Luangta Maha Bua who has just added a further 40 gold bars to the banks coffers which he gathered from public donations. The bank's governor, Pridiyathorn Devakula, said this would be the last contribution from this startling character, revered throughout the land. He has been campaigning since 1997 to buttress the bank's reserves, and with some success. According to Devakula, "Last year, he asked me whether the country's foreign reserves were adequate. I told him they had been much strengthened, and there was no need to seek additional funds. But he said the public's faith was strong, and that people still wanted to make donations." Devakula says Thailand's foreign reserves are now quite adequate at US$36.6bn.
MISINFORMATION IN IRAN
Contrary to what had been widely reported in the Iranian press and even found its way into the Financial Times - and, unfortunately, featured in the last issue of Newsmakers - Iran's judiciary has denied its supposed plans to summon either the central bank governor, Dr Mohsen Nourbakhsh, or the oil minister to court to face corruption charges. An official in the judiciary confirmed: "We have heard these reports, but no one from the judiciary has given out such information and, as far as I know, the judiciary does not have such a plan to summon these people." Nourkbakhsh himself denied the rumours. I would add that I did attempt to contact the Iranian central bank at the time to check out these reports, but did not receive a reply until it was too late. A spokesman later told me that the bank "strongly refutes" the allegation, and that its governor "has never been called by any court of law", which we were pleased to discover.
ZAMBIAN GOVERNOR IS "RETIRED"
The governor of the central bank of Zambia, Dr Jacob Mwanza, has had his term cut short. The president of Zambia did not make explicit his motives for replacing him. Mwanza, who is 65, was only two years into his second five-year term when the new Zambian president, Levy Mwanawasa, appointed Dr Caleb Fundanga in his place. The president wished Mwanza well, saying that he hoped that he would use his experience and exposure in the private sector.
Fundanga was previously a senior adviser to the president of the African Development Bank where he was the executive director. Before that he served as permanent secretary at the cabinet office in charge of economic affairs, as well as the ministry of finance. Fundanga has also been a lecturer at the University of Zambia. In an official statement, it was explained: "With this appointment the president wants to demonstrate his resolve to seek the expertise and experience of Zambians wherever they might be."
Fundanga's appointment follows a string of other newly appointed officials since President Mwanawasa's election last December. This represents the last link in the chain of a new economic team he has built at the expense of several big cheeses in Zambia who were, like Mwanza, "retired". Mwanza commented in January that he wanted to serve out his term, although "with a new leader, regardless of the contract and security of tenure, one would have to make way if the president asks one to do so." The president has also appointed a new finance minister, and heads to the Treasury, Zambia Revenue Authority and Zambia Privatisation Agency.
CENTRAL BANKERLY RETICENCE
John Taylor is showing at least some of the hallmarks of a true central banker. He was asked by a reporter from the Wall Street Journal, quite directly, whether he would consider accepting Greenspan's job if approached. He answered as follows: "Monetary policy responded to the (US) slowdown, interest rates were cut and our policies have been working well through the whole length of the 1990s and back to the 1980s. That's what the message should be: things are working very well and the evidence for that is there in many different places." One could devote long hours to attempting to extract hidden meaning from this answer, but it would be time wasted. There is none: Taylor can provide an answer to unanswerable and basically ridiculous questions, while managing to slip in coherent thoughts on monetary policy at the same time. This much will be in his favour in the search for Greenspan's heir.
8 April 2002
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By Benedict Mander
Central Banking Publications
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THE BELT TIGHTENS IN HONG KONG
If you thought the public sector always pays badly, then think again. Well, think, at least, that there are considerable attractions to working in the public sector in Hong Kong. Joseph Yam, who heads the Hong Kong Monetary Authority, is reputedly the world's best paid central banker. In 2000, he earned something in the region of HK$9-9.5m (US$1.15-1.22m). Poor Mr Greenspan on the other side of the Pacific was fobbed off with US$133,600 (HK$1.04m) in 1997 (compared to Yam's HK$7.5m at the time).
Iniquitous, some may scoff. None louder than the Hong Kong Monetary Authority itself - indeed it was no other than Mr Yam himself who nobly requested that his salary become a touch more palatable to the public in the face of Hong Kong's highest unemployment levels in decades. Yam deserves respect for volunteering last October to have his pay whittled down by 10%, a gesture that was only made public recently. He can be proud to be the first civil servant in Hong Kong to have his pay cut, even while the pay of some others is actually rising.
But the governor is not the only one in the authority to feel the belt tightening. The entire 600-strong staff of the authority will have 40% of their bonuses spirited away, as well as a pay freeze this year. On top of this, there will be a 5% reduction in staff levels and a 5% reduction in the administrative budget. This should cut the authority's overall budget by 5%. This also means that Yam may forgo a full 15% of his previous pay, taking it to below HK$8m - although I should probably point out that this is a speculative figure.
[ASIDE - Perhaps Estonia isn't such a bad place to be a central banker either: readers may be interested to hear that the president of the Estonian central bank, Vahur Kraft, got a walloping 874,186 kroons (·56,000) in 2001, about half of which makes up his regular salary, the rest being extras and bonuses for the bank's good performance. Kraft's monthly salary was 40,530 kroons, nearly ten times the average monthly salary in Estonia.]
...AND IN JAPAN
Central bankers will also be watching with interest movements in pay levels in the Bank of Japan. It plans to cut retirement allowances for all its directors. Here the bank is complying with a recent government decision to cut public sector executive pay. Masaru Hayami, the bank's governor, saw his retirement allowance sag from 51.08m yen ($0.39m) to 36.12m yen ($0.27m). Allowances for the deputy governor will fall to 28.56m yen ($0.22m) from 40.39m yen ($0.31m). Monthly pay for the bank's directors will also be hit, dropping by 110,000 yen ($831) to 1.28m yen ($9,673) for executive directors.
Also, the bank's policy board has been shaken up as two lifelong businessmen have now been appointed. The terms of Toshio Miki and Nobuyuki Nakahara expired at the end of March, and although there has been some deliberation in appointing their replacements, Toshikatsu Fukuma, who advises the trading house Mitsui & Co., and Hidehiko Haru, vice president of Tokyo Electric Power Co., have now been confirmed as new members of the decision-making board. They have both been working at their respective companies for the last 40 years.
APRIL 1 IN CANADA
There has been a hullabaloo in Canada over rumours - started on April Fool's Day - that the finance minister, Paul Martin, had decided to pack it all in and withdraw to a life of rustic simplicity. Pierre Bourque's website for political gossip featured a deadpan story about Martin's longstanding desire to retreat to his farm to pursue a "burgeoning" interest in breeding "prize Charolais cattle and handsome Fawn Runner ducks which he plans to show this fall at the Brome Lake and Havelock fairs". The article said: "The Bank of Canada is said to be ready to intervene with the Canadian dollar to stabilise it on world markets if necessary." Needless to say, the Bank of Canada only found out about the hoax when the story made headlines the next day. I have been assured that there was no intervention by the bank on the financial markets and no truth to the fact that the bank was standing by to intervene. But currency traders were brilliantly fooled as they unblinkingly began to sell, having failed to spot the gag, let alone the date, causing the Canadian dollar to fall to its lowest level in a month, although it recovered as soon as dealers realised that they had been caught with their pants down. http://www.bourque.org/notes.html
A SUCCESSOR FOR NOYER?
It looks as though the successor of the ECB's vice president, Christian Noyer, may soon be decided - at last. Central bankers and finance ministers are due to meet in Oviedo from April 12-14, and, fingers crossed, a successor will be announced. The president of the ECB, Wim Duisenberg, said in a recent press conference, "I expect a proposal maybe in Oviedo or shortly thereafter." Spanish economy minister Rodrigo Rato took a similar line: "I think that next week in Oviedo there will be a (common) position from economy ministers to propose a candidate to European governments for the substitution of Mr. Noyer." About time too, as Noyer's term on the ECB board expires at the end of May. The contest remains between Greek central bank governor Lucas Papademos and Belgian economics professor Paul de Grauwe.
But the ECB has been less than decisive about its plans for the successors to other outgoing members. Duisenberg brashly told reporters that the question of his successor and that of his fellow board member Sirkka Hamalainen was "not yet on the order of the day". As it is not a burning priority, he said that he expected that it might be dealt with "in the first half of next year".
INVESTING IN EQUITIES
In the same press conference, Duisenberg was questioned about what he thought of the idea of the Bundesbank using some of the money from the sale of its gold stock to buy equities. He replied that for many central banks, buying equities is "not unusual". We at Central Banking Publications were intrigued by this, and apart from a few notable exceptions - such as the incident when the Banca d'Italia got its fingers burned after the Long Term Capital Management fiasco - a straw poll between us yielded pitifully few other examples. Can any Newsmakers subscribers think of other examples? Please let us know!
FORMER ARGENTINE GOVERNORS ACCUSED
The trend towards accusing former central bankers of mismanagement or worse and hauling them before the courts continues. Last week former presidents of the central bank of Argentina, Roque Fernandez (1991-1996) and Pedro Pou (1996-2001), were both indicted for actions they took while in office. The allegations centre on policies during the collapse and liquidation of Banco Feigin in 1995, when Fernandez was president and Pou was vice president. The charges claim that, while Banco Feigin was barred from engaging in transactions, the central bank allowed it to use $37m to pay off loans with Banco Nacion. The judge in the case ordered assets of Fernandez and Pou, worth 76m pesos and 72m pesos respectively, to be frozen. If found guilty, the former governors face up to three years in suspended jail terms.
Fortunately these accusations show no sign of cramping the style of the present governor, Mario Blejer. In a recent interview, he was modest about his achievements at the central bank so far, saying that his greatest accomplishment since taking control in January was merely that "we've survived"! He added: "These last weeks have been very difficult." Indeed, his chief concern is "to keep the situation under control." When asked if he and his staff were up to the job of managing a floating currency regime - basically launching a new currency from scratch - he said, "Yes, the people here are very qualified. But we're operating in a very complicated new arena[and] under a lot of pressure."
NOURBAKHSH FACES DOWN THE MULLAHS
Mohsen Nourbakhsh, the governor of the central bank of Iran, is also in trouble. The country's judiciary has announced its intention to pursue his case, under charges of corruption. But he is not the only Iranian magnate whose probity is under question - the oil minister and other senior politicians are also to be tried. This represents part of Ayatollah Ali Khamenei's campaign against corruption, although it goes against the wishes of Iran's less zealous president, Mohammad Khatami, who tried to block the trials last November, on the grounds that they were politically motivated. It is reported that Nourbakhsh's alleged misdemeanours involve gifts of gold coins from the bank, as well as being implicated in corruption among former officials of state banks who have already gone on trial. Nourbakhsh already betrayed signs of being out of favour with some of the mullahs earlier this month when he was ejected from the powerful Expediency Council.
VOLCKER TO THE RESCUE
Andersen has accepted Former Fed chairman Paul Volcker's plans to make radical reforms to the firm, perhaps the only way to save it. Volcker believes the firm can only recover its reputation and commercial viability by ditching its consultancy operations and concentrating on audit services. He also wants to expand the board to seven people which would have full control of the US practice with sweeping powers to make senior management changes.
But the plan hinges on the US government dropping its obstruction of justice charge against the firm, which some say is unlikely. Andersen is nonetheless moving to sell or spin off much of its existing US practice. One Andersen spokesman has said, "We are confident that we can move ahead and build the audit firm of the future under the leadership of Mr Volcker." Another has commented, "We intend to be around for a long time as a newer and better audit firm under the leadership of Paul Volcker."
Also, now that Andersen's CEO Joe Berardino has left the company, there is a vacuum at the top, and somebody has to fill it People have been wondering whether Volcker might fit the bill, although Berardino has said that the new leader may come from inside the company.
O'CONNELL SOLDIERS ON
The former governor of the Central Bank of Ireland, Maurice O'Connell, only weeks after leaving the bank, has no intention of allowing himself to slide into the sybaritic lifestyle that must tempt so many retired central bank governors. His appointment by the minister for arts to chair a high-level group on the future of public sector broadcasting - no sinecure, certainly - is a kind relief from gardening. Doubtless the qualities of thick-skinned media veteran that any central bank governor must develop will have commended him for the job. The many interviews he has conducted over the years and the unrelenting media coverage that has shadowed him during his governorship - particularly in his last two years when television stations from all over the world were interested in his views on the 'Celtic Tiger' and the introduction of the euro - makes him well placed to take on such a role.
BANK OF ENGLAND MPC RESHUFFLE
The Bank of England's monetary policy committee has landed a fresh catch now that Ian Plenderleith has announced his retirement from the bank, to coincide with the end of his term in May. He turns 60 next year. Paul Tucker is to fill his boots, currently the bank's deputy director for financial stability. A sprightly 44 years old, Tucker first joined the bank when he was half that age, although since then he has done time at the former Barings Brothers as well as advising the Hong Kong government on reform of the securities markets. The future of David Clementi and Sushil Wadhwani, who both also sit on the MPC, is presently uncertain, as they too are approaching the end of their terms this summer.
CONTINUED TURBULENCE IN INDONESIA
There is continued turbulence in Bank Indonesia. This time it is over parliament's delay in confirming two new central bank deputies after the governor Sjahril Sabirin nominated candidates - Aslim Tajuddin and Hartadi A. Sarwono - to replace Achjar Iljas whose term ends on May 17. Bunbunan Hutapea's term also ends then but Sabirin hopes he will be reappointed. Sabirin's proposals must be approved by parliament, but since it is now in recess it is unlikely that it will pay further attention until the next session starting May 10. The bank's spokesman was unable to tell me what would happen then, since the amendment of Bank Indonesia Act is not yet ready and there is a plan to reduce the number of deputies to three (currently eight), despite the bank's best efforts to convince parliament that the optimal number of deputies should be five.
NOW ANYONE CAN MANAGE MONETARY POLICY...
The Reserve Bank of New Zealand is doing its bit for transparency. You can now download from its website a monetary policy computer simulation game in which you are given a chance to find out for yourself just how bafflingly complex or unnervingly simple - whichever way you want to look at it - managing monetary policy really can be. The player's task is to keep inflation stable by controlling interest rates in a virtual economy with a few graphs and a smiley or scowling face (depending on how you're doing) to guide you along your way. http://www.rbnz.govt.nz/education/0116902.html
BADGE OF HONOUR
Unfortunately, central bankers cannot always balance sensible policies with popularity. Masaru Hayami, the governor of the Bank of Japan, is all too aware of this, and was accused by one politician last year of being "lower than a monkey" while another one said he was "the worst Bank of Japan governor in history". But Hayami is impervious to criticism; in fact, Hayami believes so passionately in the rightness of his stand that he seems to revel in it. Earlier this year he said in an interview: "Even if I am hit with stones, I think of it as receiving a badge of honour."
© Copyright 2002 Central Banking Publications. All rights reserved. Reprinted at USAGOLD by permission.
Benedict
Mander
Email: bmander@centralbanking.co.uk
Central Banking Publications Ltd
6 Langley Street, London WC2H 9JA, UK
Tel: +44 (0)20 7836 3625
Fax: +44 (0)20 7836 3608
http://www.centralbanking.co.uk
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