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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.
28 April 2003
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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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GREENSPAN GOING STRONG
Alan Greenspan could have hoped for no better fillip to his recovery from a "routine and successful" operation after testing negative for cancer than President Bush's out-of-the-blue remark on Tuesday that "I think Alan Greenspan should get another term." This was in response to reporters quizzing him on whether he thought Greenspan had done a "good enough job" -- remember there was a little tension recently when he criticised the administration for its planned tax cuts as it risked creating damaging budget deficits in the future. But all this seems to be water under the bridge, and the Fed chairman appears to be delighted at Bush's remark -- although it came as something of a surprise.
Greenspan swiftly issued a statement saying, "The President and I have not discussed this but I greatly appreciate his confidence." If all the necessary procedures were to go as planned, Greenspan said with impressive resolve that he would have "every intention" of continuing in his role. No spring chicken at the age of 77, he would continue until 2006 if he completes his 14-year term begun in 1992 (although he became chairman in 1987, he was then serving a partial term). According to former Fed governor Lyle Gramley, "He loves his job. His mental acuity is as sharp as ever and his physical health has not deteriorated." So what is his secret, envious septuagenarians might be forgiven for asking?
MCDONOUGH TURNS REGULATOR
The recent announcement that William McDonough, outgoing chief of the New York Fed, is to head the Public Company Accounting Oversight Board seems to have triggered intensified speculation as to who will be his successor. Although at the time McDonough declared his retirement the media in turn confidently declared that US Treasury Undersecretary Peter Fisher would replace him, these assertions have been quietly forgotten and minds now seem to have changed. Stanley Fischer is the new dead cert. Roundabout ratiocination has lead Fed watchers to conclude that it could be no other, with various unnamed sources alleging that a single contender has emerged for the job, while other "insiders" have been assuring that the man is Stan.
Fischer's lips are sealed, of course, having only recently left the IMF as its first deputy managing director to become vice-chairman of Citigroup. Newsmakers' source at the New York Fed brushes aside the generous column space devoted to speculation on who will succeed McDonough, saying, "It's still premature for the press to anoint a successor, even though the speculation is rampant... There has been no decision yet." We will just have to wait and see.
As for McDonough, his post at the accounting oversight board is intended to play a critical role in the tightening of corporate accountability -- it was created under the Sarbanes-Oxley Act following the string of corporate scandals that has blighted America. Technically it is an independent corporation, set up by the Securities and Exchange Commission, so McDonough does not need to go through Senate confirmation, having been named by the SEC commissioners. McDonough's salary will be boosted from $313,000 annually, already considerably more than Greenspan's, to $556,000, surpassing even that of President Bush -- it is hoped he will be worth it. But before he gets there he will be attending his last FOMC meeting on May 6. Governors leaving the Fed to move to the private sector typically don't go to the next-to-last meeting before their departure -- nevertheless McDonough's attendance has caused murmurs. Entirely unjustified, as it happens, and as one senior Fed official told Newsmakers, it's "just some folks looking for something to talk about."
BACK TO COURT
Not long after winning an acquittal for its governor, Sjaril Sabirin, who had been sentenced to three years imprisonment for corruption, Bank Indonesia once again prepares to lock horns with the legislature. Three ex-directors, Hendrobudiyanto, Paul Sutopo, and Heru Supraptomo have now also been declared guilty of corruption. Their "crime" was to extend liquidity support to ailing banks during the Asian crisis, instead of stopping the clearing process of such banks as normal procedures would require. They have also been sentenced to three years imprisonment, as well as being landed with hefty fines. Spurred by the central bank's recent victory in court, the central bankers are preparing to fight back. The verdict was only ruled by the district court, meaning that there is still a chance to appeal to both the high court and the supreme court.
The case is considered by some to be highly politicised, because, as the central bank tells Newsmakers, "Bank Indonesia was still under the ministry of finance and therefore subjected to carry out orders from the government, including the order to extend liquidity support to prevent crisis-stricken banks from failing." Since then, the bank has gained independence from the government, but as it is the bank maintains that the accused ex-directors were under orders from the government. For this reason, the bank is right behind its ex-directors: "We at the central bank are very concerned with the guilty verdict, and thus we support the ex-directors' effort to appeal to the higher court and supreme court." It also doesn't think that this can be damaging for its credibility, for the simple reason that the bank was not independent at the time so "people will not relate the outcome of the case to our current performance."
POLISH PUNCH-UP
Sparks have been flying in Poland as the central bank and the government once again trade blows. The central bank's governor, Leszek Balcerowicz, has denounced the government's perpetual needling of the central bank to lower interest rates as "behaviour unprecedented in the civilized world." A few days earlier, the central bank had also told the government in no uncertain terms that its blueprint for fiscal reform was woefully inadequate. Supposedly designed to help breathe some life into the torpid economy and clear the way for entry into the EU, the bank's monetary policy council said that the plan was unlikely to achieve its aims: it "cannot be recognised as a comprehensive programme of actions leading to a deep and lasting fiscal reform."
Furthermore, the bank refused the finance ministry's proposal to release one-third of its 27bn zloty ($6.8bn) revaluation provision, a safeguard against exchange-rate shocks, to help out with Poland's EU-related financial obligations. Balcerowicz pointed out that this would be tantamount to printing new money, and would consequently violate EU national accounts standards: "Printing additional money is not the way to co-finance EU aid." The grazed finance minister bit back, saying, "If the central bank will oppose this move, it would be a very ill-advised, short-sighted and stupid policy." Put out by the central bank's wilfulness, he added, "If the central bank is serious about my drive to cut the fiscal deficit, they should support me." Perhaps he should listen to, and even think about, what they are saying first.
PLEASE SIR, CAN I HAVE SOME MORE?
Quite apart from being possibly the least independent central bank in the world (see Newsmakers issue of March 31), the Reserve Bank of Zimbabwe may also be the least well fed. Zimbabwe's central bankers are up in arms, protesting at the preposterously stingy portions they are being served in the staff canteen. Outraged workers are demanding that the caterers be expunged, and are boycotting the canteen by simply eating elsewhere. According to one senior official at the central bank, "Only 90 senior managers out of the staff complement of 520 are having their lunch at the canteens."
The problem is said to lie in the penny-pinching politician Irene Zindi, whose catering firm is feeding the central bank, and which workers complain is not meeting the criteria specified in the tender it won last year. A source at the central bank told the Zimbabwe Independent that Zindi had ordered her staff to reduce the quantity of food served; such effrontery was met by central bankers with indignation and subsequent demands for an explanation. Apparently, "She rudely told RBZ staff that 'I came here to make money and not to feed you', which resulted in the boycott." As far as Newsmakers can determine, Zindi is still malnourishing Zimbabwe's central bankers, but let's hope not for too much longer.
FRESH START FOR CHILE
Following Carlos Massad's announcement that he is to leave Chile's central bank, a new governor has been appointed. The respected economist Vittorio Corbo, who was appointed as director at the beginning of April, has now been named as Massad's replacement, as of the beginning of May. This came as no surprise, and seems in fact to have been widely expected. When the Senate approved his nomination as a director earlier in the month with a resounding majority of 40 to 6, certain senators commented at the time that they were aware that they were not only approving a director of the central bank, but really also its governor. One senator has since said, "He couldn't have been anything but governor of the board. Someone on that international level could hardly accept to be a mere board member."
When he was named governor, Corbo said, "I am happy to have the opportunity to help to continue strengthening this great institution which our country has, which is an independent central bank." He added that his main challenge would be to continue to keep inflation close to the 3% target, as well as perfecting the payments system. Corbo used to work at the World Bank and has a doctorate from MIT. Although he is judged to be politically independent, he is assumed to lean more towards the more right-wing opposition than the ruling centre-left coalition.
CENTRAL BANKER FOR PRESIDENT?
After little more than 100 days on the job, speculation is rife that Ukraine's central bank governor, Serhiy Tyhypko, is angling for another even bigger catch -- the presidency. Newsmakers readers may recall the highly politicised nature of Tyhypko's appointment as governor of the central bank, with opposition members of parliament doing their darnedest to prevent this from happening by resorting to some, shall we say, unconventional tactics. They did not have the desired effect, and Tyhypko, who had been leader of the pro-presidential Working Ukraine faction (which he has since quit), became governor.
But already his enemies are stirring up trouble again, and a national newspaper, Ukrayina Moloda, has reported that Tyhypko may be putting himself forward as a candidate for the 2004 presidential elections. Purportedly, the current administration favours Tyhypko as a potential successor, and his omnipresence in the government-controlled media has been seized on as evidence. One disaffected journo accused him of being "engaged in a campaign of calculated charm", peevishly commenting that "like some sort of gas, Tyhypko fills the entire space available to him -- information space in our case... And he doesn't even ask you whether you actually want to hear about his crystal clear transparency -- he just seeps into your brain, your lungs, your pocket and your wallet."
What is more, Tyhypko has made some rather ambiguous statements concerning the role he may play in the elections. According to Ukrayina Moloda, he has even been contradicting himself. It says that only a few months ago he said that his participation in the presidential campaign was "a very remote possibility". He later decided that discussing his role in the election was "premature". Now he is complaining that "Journalists frequently ask me a blunt question: what is my role in the 2004 election campaign?" But he seems to remain unsure: "It is very difficult to give a definitive answer to it." Reluctant to burn bridges?
Oddly, he seemed more certain at the time of his appointment, when people had already been questioning his staying power: "Even friends, let alone political opponents, have already asked me if I came to the national bank for a year or a year and a half. If I am not mistaken I was elected for five years. I would like to work for at least five years and then we will see."
Will we see sooner? In his defence, he does recognise the importance of his current role: "It is my strong conviction that I am able to do a lot of good for common people and for the country in the capacity of the National Bank chairman. In a period of high political tension the central bank is able to ensure stability and the well being of every person through maintaining the stability of the national currency and of economic growth. Could there be any more important and honourable task? This is the politics of a professional, if you wish, and I am ready to deal in such politics every day." Admirable talk, but is it the talk of a central banker or a politician?
14 April 2003
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By Benedict Mander
Central Banking Publications
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IRAQI LOOTERS TRY THEIR LUCK
Developments have taken their toll on the Iraqi central bank, as Saddam's regime disintegrates and any semblance of civil obedience disappears. Looters and freebooters seem to be laying their hands on whatever's going. The more ambitious ones are hoping to make good by spoliating the central bank's coffers, and recent reports on British television have shown footage of chancers inside its headquarters in Baghdad furiously hammering away at the vaults in the hope of winning their fortune. The tools they were using looked flimsy, however, and no reports of a successful break-in have yet been made. The footage also showed a reporter wandering freely around deserted offices that appeared to have been fairly diligently ransacked, with upturned desks and papers littered all over.
In Mosul however, in northern Iraq, there has been more success. Newsmakers hears that Abu Dhabi TV has been broadcasting images of gleeful pillagers scurrying out of the central bank branch there with armfuls of banknotes having prized open the safe, and some were to be seen scrapping with others who had presumptuously attempted to steal their stolen money. AP quoted one bystander as saying, "What is happening shouldn't happen. This is barbaric. This is not Saddam's money. This is the nation's and the people's money." Elsewhere, reports detailed sightings of Iraqis pinching all manner of furnishings from the central bank's branch in Basra, and feverishly piling them up onto donkey-drawn carts or clapped out cars to make their getaway.
Meanwhile, the "Saddam dinar" (so called as it carries a picture of the man) has tumbled to something like 2,800 dinars to the dollar, although one dinar is "officially" worth over $3... This will doubtless make the Kurds in the north very happy indeed, as they use what is known as the "Swiss dinar" which has not been reprinted since 1991. As might be imagined, notes are now in rather short supply, and this problem has been exacerbated by the fact that the currency has strengthened from more than 10 to the dollar last month to around 6 at last count, with hopes that it might rise as high as 2 to the dollar -- causing those who are lucky enough to have any of them to stash them away.
All of this only serves as a
reminder to what a job it will be to rebuild Iraq, and specifically
the central bank, when hostilities cease. Hardly an enviable task.
For an idea of what the central bank looked like before the war,
have a look here:
http://archnet.org/library/images/one-image.tcl?image_id=25086
TRICHET'S REPRIEVE
For every setback Jean-Claude Trichet suffers, his guardian angel delivers a counterbalancing reprieve. Although his fate still lies in the hands of the unpredictable French judiciary, EU finance ministers pragmatically decided in Athens last week that the equally hapless Wim Duisenberg should stay on indefinitely until a successor is named. Duisenberg has humanely acquiesced in their scheme, declaring, "I will be president of the ECB up to and until the day my duly appointed successor takes office. In the interest of a smooth transition I'd be happy to continue as president for some time." Newsmakers hears that Wim really "just wants to go fishing", which is hardly surprising given the remorseless harassment to which he is subjected by the media. One hungry hack asked him whether he had had any signals from EU governments that they wanted him to stay on longer. Duisenberg tersely retorted, "All the signals I have come from your papers."
RETURN TO THE ROUBLE? NO THANKS
The chairman of the National Bank of Kazakhstan (NBK), Grigori Marchenko, is outraged at the prospect of adopting the Russian rouble as the currency for the planned economic union between Belarus, Kazakhstan, Russia and Ukraine. Marchenko would resign: "If the presidents and the parliaments of our countries were to adopt such a political decision -- damn sovereignty, let the Russian rouble be [the common currency], let it be so. But I personally would not consider it to be the right one. I personally will not deal with this."
Marchenko tells Newsmakers that he favours a new international central bank rather than ceding sovereignty to the Central Bank of Russia (CBR). Newsmakers asked Marchenko to what extent such an arrangement would merely represent a return to the situation in 1991 before Kazakhstan gained independence and set up its own national currency, the tenge.
He joked, "Well, as you well know, history is always repeating itself -- there is nothing new under the sun." But, more seriously, he added: "What is important for us is to protect our country's interests, and not to be taken advantage of, which was sometimes the case under the Soviet Union arrangements. We have all learned some hard lessons since then, and this new arrangement could be a better one for all the parties involved." He wistfully mused, "We will be the happy members of a much larger organisation."
But, plainly, returning to the rouble is not what he had in mind. As Marchenko said to the Russian Izvestiya newspaper, "The point is that when we are offered to make the Russian rouble our single currency, that actually means delegating a part of the sovereignty of the states to Russia. In exchange for what? For this sole reason such a scenario is not an acceptable one." Marchenko lists a number of other reasons why. For starters, monetary policy would be in the hands of the CBR, while the NBK "would not be able to do anything, since they would have no levers to influence the Russian institution." Kazakhstan would presumably have no say over the appointment process of the CBR. Furthermore, Marchenko asks, "What if, unexpectedly, a new chairman [of the CBR] carries out a fourfold depreciation, as was the case in 1998, to help exporters?"
Right now, this is all still up in the air. But obviously returning to the rouble would not be a satisfactory arrangement for Kazakhstan, and consequently Marchenko will quite sensibly have nothing to do with it.
FIGHTING A LOSING BATTLE?
When Newsmakers reported in the last issue that the independence of the Venezuelan central bank was in grave danger, we could not have hoped for such speedy vindication. The past six presidents of the central bank and a number of others had put their name to an open letter to the government complaining that the bank is now "virtually a monetary branch of the government and a generator of recurrent revenues for the national budget." It seems nothing has changed since then. The country's independently-minded president, Hugo Chavez, has threatened to prosecute the central bank if it fails to do his bidding: "If they do not respond in a positive way [and cut interest rates], the government cannot just sit with its arms folded. If we have to go to the Supreme Court we will."
Well that's one way of going about things; but a director at the bank, Domingo Maza Zavala, then boldly spoke out against the government, telling a local paper that the central bank won't accept "pressure from anyone" to change rates. He says that the central bank "has the legal right to set a ceiling for interest rates when it considers it convenient, not because of pressure." Honourable words, but fulfilling them is another thing. On Thursday the bank did in fact cut rates: from 39% to 36%, but still not the 30% that Chavez is said to be demanding.
CENTRAL BANK "DOES NOT EXIST"
Zoran Zivkovic, the successor to Serbia's recently assassinated prime minister, told a Belgrade radio station last week that "the National Bank of Serbia (NBS) does not exist." Quite what he meant by that is hard to ascertain, particularly as he went on to qualify his statement by saying, "All those who present themselves as the NBS present themselves falsely. All those who mint banknotes bearing the name 'NBS' are minting counterfeit banknotes."
What's going on? Perhaps he was confused because the NBS only recently came into existence on February 4. According to NBS governor Mladjan Dinkic, who seemed to be alive and kicking when Newsmakers called him, the constitutional charter was ratified on that day and what was the National Bank of Yugoslavia (NBY) became an institution of the state of Serbia -- thus becoming the NBS.
Dinkic hit back at the prime minister on Serbian national television, saying he was "appalled" by the astonishing assertion: "Saying that we print false money, well, this amounts to saying that we are committing a criminal act. In that case, the police should come and arrest me -- both I and my associates should be arrested. If the contrary is the case, then Mr Zivkovic is committing a criminal act of libel, spreading false news and panic among the citizens."
Dinkic directly challenged the prime minister, saying that if he really wanted him out -- and it has been suggested that this is the case -- he could at least say so: "If political pressures stand behind this statement of his then he should say this out loudly and clearly: that Dinkic is in their way because he did not stabilize the dinar, because inflation is still very high, because we do not trust the banks or simply because he was doing his job badly. Let him come out publicly and say: the governor is bad and we want to replace him."
Embarrassed aides of the prime minister have since attempted to make light of the episode: "The prime minister wanted to say that legally we don't have a NBS. He was not commenting on Mr Dinkic personally... Technically, the NBY exists until we pass a new law establishing the NBS. Until then, no such institution exists." This still doesn't quite tally with what Dinkic says, but Newsmakers is pleased to learn that Dinkic and Zivkovic have held private conciliatory talks, which the NBS has described as "constructive", and "cooperation between the two institutions will resume." Good! The finance minister, who seems to be a little less hot-headed than his superior, has even offered a message of assurance for Dinkic: "I've said it fifty times and I'll say it again: I believe that Mladjan Dinkic should be the governor of the NBS."
CENTRAL BANKER'S REMEDY FOR SARS
Millions of people living in fear of contracting the lethal virus, SARS, should take a piece of friendly advice from the governor of the central bank in Taiwan, Perng Fai-nan. Sources say that he has struck upon an excellent way of beating off the beastly bug: mix together a curative concoction of vinegar, crushed garlic, lily flowers and other Chinese herbal remedies. Apparently Perng has said that "this can be effective against SARS", and is even offering the brew at the central bank's in-house grocery store. Other sources say that the bank's cafeteria is serving free ginger tea and onion-garlic water at lunchtime to help employees fend off infection, although Newsmakers has been unable to verify this.
MASSAD GOES
Carlos Massad, the well-known economist who has resigned as president of the Central Bank of Chile, had come under heavy fire from both the government and the media, but that is not what made him throw in the towel. As he tells Newsmakers, "My resignation was 100% voluntary. It was a personal decision, which only my wife knew of before I presented my letter of resignation to President Lagos."
He admits that he came under "intensive" pressure from political leaders to resign, after allegations that one of his staff had been sending market-sensitive information from his computer to a local financial institution. But Massad also says that these political leaders were "very careful" to support central bank independence. As he explains, there were dark forces at work: "This pressure was not the basis for my resignation. Active public discussion in the press put the credibility of the central bank at risk, and I could not accept that risk. So, I waited until appropriate measures to strengthen information security were put in place at the bank, and then resigned."
Massad insists that the credibility of the central bank has remained intact, citing the fact that inflation expectations remain in line with the central bank's target -- "I feel proud of this: the institution is strong enough to withstand pressures." And it was certainly put under great strain by the media, which bloodthirstily dubbed the episode as "possibly the greatest financial scandal in recent Chilean history".
Massad pins much of the blame on the press: "The way in which domestic press handled the discussion, exacerbating morbidity and rumours rather than information, could have damaged the credibility of the central bank if maintained for a long period." As a result, the only solution was for him to resign.
Likening the episode to the terrorist attack on the Twin Towers where the security measures which had been in place in US airports subsequently proved to be inadequate, Massad says that there is little that can be done to ensure that such an episode will not happen again: "It is impossible to be absolutely sure that there will be no more leakages, but we can reduce the probability of leakages."
There are implications for the supervision of the financial sector. The bank which allegedly received emails from Massad's office was subsequently alleged to have been involved in all manner of shady dealings. Massad says: "This raises questions about the quality of supervision of the relevant supervisory agency. I believe that consolidated supervision is a must in the Chilean economy."
Carlos Massad, who has had a distinguished career as an inernational economist and central banker, and is well known in UN circles, intends to take a long holiday. Then he will survey his options: "My professional training and experience, as well as my personal preferences, are clearly linked to macroeconomic analysis and policies."
IN SICKNESS
Some central bankers may perform superhuman feats, but they themselves are all too human.. Matti Vanhala, the 57-year old governor of the Bank of Finland, will be away from the bank until June to undergo an operation for cancer. His deputy Matti Louekoski will attend ECB meetings in his place. The governor of the central bank in the Philippines left the central bank for a month in early March to be treated in the US for a thyroid problem, assuring his countrymen that the central bank would be left in "very capable hands". Also, the head of Argentina's central bank at the time of the country's ruinous devaluation at the close of 2001, Roque Maccarone, has died, at the age of 70. He had a long and prosperous career as a banker and also serving for the Menem administration, not joining the central bank until April 2001.
PUTTING THE BOOT IN
London's Evening Standard had a nice piece on Howard Davies this week. It reported that as Sir Howard Davies is definitely "on the way out" at the Financial Services Authority, the City "is beginning to put a gentle boot in". The item continued: "Mike Ross, president of the Association of British Insurers, introduced the FSA chairman as a speaker at the ABI's annual conference by saying: 'Howard will be a hard act to follow... which either means he has set very high standards... or that he has created such a mess it will be impossible to sort it out.'"
© 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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