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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.
25 March 2002
******************************************
A selection of news stories from CentralBankNet
http://www.centralbanknet.com/
By Benedict Mander
Central Banking Publications
******************************************
THE END OF AN ERA
A month ago, Newsmakers reported that Viktor Gerashchenko, chief of the Russian central bank, was tiring of his job, teetering on the brink of surrender; now Gerashchenko has at last admitted defeat. He quite abruptly sent a letter of resignation last Friday to the president, Vladimir Putin, citing reasons of ill health. Although he was known by his colleagues as Hercules, surely an apt name for someone shouldering responsibility for the behemoth that is the Russian central bank, it seems he has finally just had enough, unable to see his term through to its end in September.
He has been quoted as saying, "I'm 64, and I don't want to die at my office desk." But some of Newsmaker's sources have suggested that Gerashchenko may be joining the bank run by his son, so no need to fill in time by writing his memoirs just yet? No doubt they would make for fascinating reading, being, as he was, a pillar of the old nomenklatura under Gorbachev, having worked his way up the ranks to become chairman of the Soviet State Bank by 1989. Former prime minister Sergei Stepashin said that "with Gerashchenko's departure, the entire epoch of Soviet and Russian banking systems is coming to an end."
Central Banking Publications wrote to Gerashchenko in the early 1990s asking for details of the central bank's activities and maybe a balance sheet and names of senior staff, but the reply received indicated that the bank was not generous in volunteering information: "The State Bank of the USSR at this moment does not publish its annual reports or any other material on the economic performance of the country." They added: "But we will not fail to inform you as soon as we have prepared such materials."
Putin accepted Gerashchenko's resignation; but newspapers suggest that his resignation might have involved some gentle encouragement. Just hours before his dismissal Gerashchenko had tried to block government-proposed reform of the central bank that will involve a brisk trimming of its independence. He fiercely warned politicians that no country has "a system as stupid" as that which the amendments would set up. There is also political dissatisfaction with the central bank's failure to stabilise the banking system four years after the financial crash of 1998 as well as the overvalued rouble, which is allegedly hurting Russia's exports.
Putin sent a letter to the State Duma to nominate Sergei Ignatyev as the new governor, who had previously been deputy governor of the central bank under Gerashchenko in 1992-3. Russians seem to have only good things to say about Ignatyev. Stepashin has fully endorsed Putin's choice, describing Ignatyev as "a wonderful professional who has done well at both the finance ministry and the central bank." Another senior politician said of Ignatyev that he was "a very experienced person, a brilliant economist and an excellent specialist. I think that under his guidance the central bank will work even better than now." A Newsmakers contact concurred: "Everybody says he is a very professional banker." He added: "Although he was at one time close to Chubais, his reputation is impeccable."
BANK INDONESIA SUSPECTS FOUL PLAY
Sjahril Sabirin, the governor of Bank Indonesia, was found guilty of the charges stacked against him, but he continues to put up strong fight. He has appealed against the verdict and the sentence handed out by the court in Jakarta. He has the full support of the central bank which has suggested that underhand methods could be at play to ensure its governor's downfall, and has vowed to do what it can to stop this.
A spokesman at the bank told me that, according to the bank's sources, the decision to sentence its governor is connected with the prior detainment of Akbar Tanjung, the House Speaker. Tanjung is also the chairman of the Golkar Party to which Mr Sabirin is connected due to his previous position there during the Suharto era. The bank believes that Tanjung's detainment was intended to speed up the process of review in the Higher Court, which may then make it possible for the judges there to detain the governor.
However Mr Sabirin stands firm and will continue his fight against "oppression" by submitting an appeal to the Higher Court or even to the Supreme Court. Based on Article 49 of Bank Indonesia Act No. 23/1999, Sabirin is still in charge of the bank. The bank says he intends to carry out his responsibilities until a final verdict is confirmed in the Supreme Court.
The bank stands steadfastly behind its governor, and the result of the verdict was "a terrible blow for all of us here." At a board meeting in the bank held swiftly after the verdict was announced, the members unanimously resolved to back their governor, and all the employees at the bank also supported this decision.
NEW GOVERNOR AT CENTRAL BANK OF IRELAND
John Hurley took over as the governor of the Central Bank of Ireland last week as Maurice O'Connell wends his way to a less exacting existence. Former civil servant Hurley's on the other hand may well become more exciting as he also becomes the newest member of the ECB's governing council - although he is not a newcomer to central banking, previously a member of the bank's board. Before being appointed governor, Hurley was secretary general at the department of finance. But there has been some criticism that a member of the department of finance should head the central bank: "The governor of the central bank should...always undertake independent critiques of the policies of the department of finance, and this is very difficult when the person has recently been a leading figure in that department," says Jim Mitchell, deputy leader of the main opposition Fine Gael party.
Hurley took the top job in the finance ministry in early 2000; among other things he also sits on the Advisory Committee of the National Treasury Management Agency and the council of a respected Irish think-tank, the Economic and Social Research Institute. Before being secretary general of the department of finance, he was secretary general of public service management and development, in the department of finance, and secretary general of the department of health.
"TYPICAL COUNTRYMAN" TO HEAD KOREA'S CENTRAL BANK
Park Seung has been appointed as the next governor of the Bank of Korea. He will take over at the beginning of April after current governor Chon Chol-hwan's four-year term ends on March 31. Seung was flattered to be chosen for the post: "It will be a great honour to return to the Bank of Korea, which is like my home town." But actually, Seung has firm rustic origins. His students at Seoul's Chungang University, where he is an honorary economics professor, describe him as "a typical Korean countryman. He really eats a lot of rice - and fast at that." His rural background explains his delight for mountain climbing. An old friend explained: "He was born into a poor family and had to walk 8km to go to school as an elementary schoolboy. He even had to skip lunches. Such hardships in childhood made him a rational guy who makes friends easily." And he is certainly very fondly regarded by his students, who say he is "reminiscent of a traditional fatherly image." Indeed, he has two sons and two daughters of his own.
Seung had lowly beginnings at the central bank in 1961 as a clerk where he remained for 15 years until he began his academic career at Chungang University. He is a graduate of Seoul National University, with a doctorate in economics from New York University. He briefly returned to the central bank as a member of the monetary policy board in 1986, before serving as chief presidential economic adviser 1988. He was then appointed minister of construction and transportation. He is currently the chairman of the government's public fund management committee which oversees the use of taxpayers' money in funding financial and corporate sector reforms. According to the Blue House, Seung has "broad knowledge and rich experiences" in finance and macroeconomics which should serve him well in his new post.
GRIMES TO ROCK THE BOARD IN NEW ZEALAND
The Reserve Bank of New Zealand's board is to be spruced up as Arthur Grimes joins the team. Grimes has been appointed a non-executive director for a five year term, but this is not his first spell at the bank. He used to work there many years ago as head of the economics department, but others may remember him for different reasons. He made a name for himself in the bank back then as something of a rocker, according to my sources. Staff at the bank would get down to his music at bank functions where his very own rock band used to play. He is apparently still very active musically, so perhaps the bank is hoping he will contribute to more than just monetary policy.
He has recently kept himself occupied as an independent economic consultant earning himself a reputation as one of the country's leading monetary policy specialists. He has also previously been chief economist for the National Bank of New Zealand as well as a visiting lecturer at Victoria University in Wellington. Grimes will replace Professor Viv Hall, whose term expired on February 28, and is expected to continue with his academic career.
A RECESSION, BUT NOT AS WE KNOW IT
In a fit of exasperation, William Poole, the governor of the St Louis Fed, has decided that the sheer indecision over whether the economic phenomenon that we have been experiencing over the last year is or is not a recession called for only one realistic course of action: inventing a new term. Those who never thought of central bankers as neologists may be impressed at Poole's characterisation of the recent economic downturn as the "Pluto recession". He would have us recall that this is not the only issue people cannot agree on. Take astronomers, for example, some of whom would prefer to reclassify the bundle of mass we know as "Pluto" as asteroid No. 10,000: "Astronomers argue about whether Pluto is or is not a planet. It's a marginal object. Some astronomers say Pluto is a planet and other astronomers say Pluto is not a planet...Any time you have an event that is out on the borderline, by definition it's not so clear." Poole was therefore forced to conclude, "I think we're going to end up calling this the Pluto recession."
VOLCKER INNEFFECTUAL IN RESHAPING ANDERSEN
Former Fed Chairman Paul Volcker battles tirelessly in the name of the public good. Once hallowed monetary champion against the demon inflation, his most recent foray as chairman of an independent oversight board to restore Andersen's credibility by making, it was hoped, "fundamental changes" to its audit practices has been something of a disappointment. He has been doing battle with those evil sorcerers who have been preying on the accounting profession, but without success. At the outset he said: "I anticipate that our work will assist in the broader effort toward needed reform of a profession that, by its nature, must be the trustee of truth and transparency in our capital markets." How mistaken he was. He has since awoken to the error of his fanciful designs, realising he was ill-equipped to match those magicians: "I had hoped that Andersen would become a model for reforming the profession," he said. "It was a dream, like Don Quixote. Still, trying to bring change does make the blood run."
KIDNAPPERS CAUGHT
Following the kidnapping of Guatemala's central bank governor, Lizardo Sosa, police have apprehended a married couple in connection with the crime. They were seized in their home in Guatemala City, after they were linked to part of the money, now recovered, which was used to pay Sosa's ransom. The full amount of the ransom remains undisclosed. Police say more arrests are to follow shortly.
SCANDAL IN TURKMENISTAN
The former chairman of the Central Bank of Turkmenistan, Khudaiberdi Orazov, is under fire from the top prosecutor's office, accused of loan fraud. A warrant has been issued for his arrest because he has allegedly embezzled $120 million. He supposedly stole loans from Deutsche Bank and Credit Suisse which were granted to the Turkmen government to boost cotton production at a state-run factory. He was chairman of the central bank from 1992 to 1998, and went on to serve as vice prime minister until 2000 when he was unexpectedly ejected from his position by the hard-line president who gave no specified reason for his actions.
TOBIN DIES
Newsmakers must pay tribute to Nobel prize-winning economist James Tobin who died at the grand old age of 84 last week. But it is lamentable that such a celebrated economist, one of the last great Keynesians, should have been so ridiculed in his autumn years. Although he contributed to economics in an astoundingly rich variety of ways, perhaps most famously for revolutionising investment theory with his "Q factor", he is now best remembered by far too many for proposing the "Tobin tax" which has been rejected as a madcap scheme. Tobin was further distraught when his idea was hijacked by a motley gang of economically illiterate anti-globalisation crusaders, whose opinions were in diametric opposition to his. "I have absolutely nothing in common with those anti-globalisation rebels," he carped last September in an interview with Der Speigel. "The loudest applause is coming from the wrong side."
QUOTE OF THE WEEK
Commenting on her recent trip to Poland, the deputy director of the IMF's European department, Susan Schadler, confirmed everybody's suspicions when she said there was "as bad an environment between a central bank and a parliament as I've seen anywhere."
11 March 2002
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By Benedict Mander
Central Banking Publications
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A MYSTERIOUS KIDNAPPING
There has been a great deal of confusion over events surrounding the kidnapping of Lizardo Sosa, the governor of the central bank of Guatemala. On Monday 25 February, Sosa was enjoying his customary morning jog when he was grabbed by a gang of masked villains. But it is still unclear who exactly his kidnappers were, or what they wanted. Contradictory and obfuscatory official information - including assertions that in fact Sosa was only off sick - gave conspiracy theorists a first-rate opportunity to sow doubt in people's minds. Was there a cover up? Did the kidnappers have political motivations? Perhaps it was an act of vengeance for actions Sosa has recently taken? Or was the incident designed to lay their hands on market-sensitive information? It might just have been an attempt to destabilise the current administration.
Who knows? Mr Sosa certainly doesn't. He has spoken out to the press, but maintains an air of bafflement which is in keeping with the whole episode: "About the motive of the action, I wouldn't be so bold to say...I haven't received death threats at the bank. There have been measures taken that have affected certain people, but they have been measures approved by the monetary board according to law. I don't know whether to say if it was politically motivated or a common crime."
But puzzlingly, the abductors' demands were apparently quite modest: although they must have felt obliged to demand a nominal sum, Mr Sosa assures us that "it was much less than was mentioned in the media", although he did get some help from "friends from the private sector" to come up with the required amount. Equally fortunately for Sosa, they sound like fairly reasonable captors. Although they held him in a small, dark room they didn't ask him anything and he wasn't tortured or mistreated in any way. He said: "They gave me food...They gave me medicine that I always take...and they called me 'Mr Lizardo.'" So what was it all about?
SABIRIN TRIAL DRAGS ON
Sjahril Sabirin, the governor
of Bank Indonesia, is on trial for charges of abuse of power,
and is still awaiting the verdict which was due to be announced
on March 6. He will have been dismayed to discover that the agony
of suspense was to be prolonged since the announcement was adjourned
for another week: the presiding judge was "not ready to make
a decision" because he had a "headache and a cough".
Sabirin has the full support of the central bank; a spokesman
tells me that all the staff "strongly believe our governor
has done nothing wrong". The bank maintains that all along
his case has been dominated by unsavoury political motives aimed
at cramping the central bank's independence, originating in the
wishes of the previous government to foist a rather more compliant
leader onto the bank. You can find out more about the case on
the bank's website:
http://www.bi.go.id/bank_indonesia_english/special/gbicase/
BANK INDONESIA TOP BRASS TO GET THE AXE
In what is widely interpreted as yet another government assault on the bank's independence, after long delays the process of the amendment of Bank Indonesia Act was resumed earlier in February. Current proposals include the replacement of the board of governors (though not the governor himself) sizing it down to just five members. Thus senior deputy governor Anwar Nasution and deputy governor Miranda Goeltom, currently in charge of foreign exchange and monetary policy, could be jettisoned from the bank's payroll. This is clearly a grave threat to its future independence since it indicates the government's ability and willing to change or dismiss the board by amending the law again as and when it sees fit.
DAGGERS DRAWN IN POLAND
Sparks have been flying in Poland as the central bank and parliament trade blows over the bank's recent decision to leave interest rates unchanged. Leszek Balcerowicz, the long-suffering governor of the bank, is getting rather bored with being criticised by ignorant politicians. Reacting to parliamentary sniping, Balcerowicz let fire a salvo of searing remarks in a recent radio interview: "When I hear attempts to put the blame for unemployment on monetary policy, the same monetary policy that has rescued the country from a financial crisis, I can only conclude that we're dealing not just with aggression, but with outright lies." His opinion of the government's economic strategy is scathing in the extreme: "Either we're dealing with a programme whose basic assumptions are absurd from the standpoint of economic theory and experience, or with a pure propaganda manoeuvre designed to lay the blame (on the central bank) if growth proves slower than planned." Balcerowicz has not been the only one to suffer: the deputy president of the central bank, Andrzej Bratkowski, was summoned to parliament to explain the cut in rates, only to be described as appearing "stoned" by one politician. His rejoinder was barbed: "I doubt that any member of this house could insult me."
ECB SUCCESSION SAGA - CONTINUED
Fresh developments in the ECB succession rumpus have brought to light that there is a hopeful in Belgium for the top job in the shape of the country's finance minister, Didier Reynders. He has been quoted as saying: "I have never said I would not be interested in the presidency of the ECB, but not (just as) a member of the board." But he clarified: "If France maintains Jean-Claude Trichet's candidacy for the presidency, we will support it. But it would not be normal for Belgium not to be represented on the board."
The Belgians are evidently eager to be a part of the decision-making process: they have formally proposed that Paul de Grauwe, the well known economist, should be considered a runner for the number two spot soon to be vacated by Noyer. This puts a spanner in the works for Greece, since central bank governor Lucas Papademos has recently been rumoured to be the frontrunner for the position. But the two have very different backgrounds. Papademos is a seasoned central banker, described by Rodrigo Rato, Spain's finance minister, as "a person of recognised standing". De Grauwe on the other hand is not practiced in the dark art, although he is a professor of economics and a member of the Belgian parliament.
So are we to assume that Papademos will win the day? Despite the competition, that seems to be what people are saying. This may come as a belated surprise to even Papademos himself. He has admitted that before he was initiated into the ways of central banking, he wasn't sure it would really be for him: "When I joined the central bank in 1985, I wasn't quite sure that central banking would become the central element in my career...Gradually, it became more obvious that I was attracted by the ability to be involved in formulating and implementing monetary policy." And he has had some success in fulfilling his desires. When not formulating monetary policy, he professes to enjoy listening to music, taking long walks in winter in the hills outside Athens and going swimming in summer.
He will have been helped by the unwillingness of others to participate in the competition. The Portuguese central bank governor, Vitor Constancio has withdrawn from the contest on account of his reluctance to deracinate: "I am not a candidate because I do not want to leave the country." He added that he was not aware of any other Portuguese contenders. His opposite number in Austria, Klaus Liebscher, has also displayed little enthusiasm for the post, citing "private reasons" for wanting to stay in Vienna, and it has since been announced that Austria will not put a candidate forward for the vice-presidency.
NEXT UP AT THE BANK OF KOREA?
The term of the current governor of the Bank of Korea, Chon Chol-hwan, is due to expire at the end of this month, on March 31. Several names have been put forward as suggestions for who might take his place, with Professor Chung Woon-chan of Seoul National University leading the ratings to succeed him. Others include Ryu Shi-yol, president of the Korean Federation of Banks, as well as the current governor Chon himself, and his deputy, Park Cheul.
According to the Korea Herald, the results of a recent survey showed that 44% were in favour of a civilian financial export taking charge of the central bank, while 28% preferred a candidate from the central bank itself. Oddly, only 60% of central bankers thought that a central banker should take the job.
Also, an overwhelming majority of 92% believed that the governor should remain in office for a full four-year term and that there should be no political interference, something of a problem in Korea. It is usually the case that a new president (the next elections are scheduled for December this year) replaces the central bank head regardless of whether or not the term of office has expired.
HAPPY BIRTHDAY!
A toast to Alan Greenspan who reached the venerable age of 76 on March 6, though he cannot boast to be the oldest central bank governor until Japan's Hayami steps down. But his seniority seems by no means to have dampened his zeal for the job: he continues to confound those sceptics who think he will not last out his term. There was renewed speculation that he might choose to announce his resignation on his birthday, as people thought he might want to "quit while he was ahead".
There is no shortage of suggestions as to who might replace him. Central bankers include Greenspan's own vice-chairman, Roger Ferguson and William McDonough, president of the New York Fed; others are former Treasury Secretary Robert Rubin, former Stanford Professor John Taylor, who now heads the monetary division at the US Treasury, Lawrence Lindsey, chief economic adviser to the White House, and Professor Martin Feldstein, who served in the White House under Reagan.
PAKISTAN GOVERNOR IN GOOD HEALTH
I am pleased to learn that the governor of the State Bank of Pakistan, Dr. Ishrat Husain, has fully recovered from the heart attack he suffered at the beginning of February, and is now back on the job. He returned to work on February 21 after taking 14 days leave during which time his deputy governor, Mr Chughtai, acted as governor.
BOTSWANA'S EMINENT CENTRAL BANKER
The lady governor of the Bank
of Botswana, Linah Mohohlo, was warmly congratulated by her staff
for being nominated as "Central Bank Governor of the Year
(2001) for Africa and the Middle East Region" by the The
Banker magazine in February. Mohohlo expressed her gratitude to
the staff of the bank and others "who have always extended
unselfish support, thus enabling [me] to make a mark in central
banking." Last year she was appointed by the Secretary-General
of the United Nations, Kofi Annan, as "Eminent Person"
to serve in a panel established to oversee and supervise the evaluation
of the "United Nations New Agenda for the Development of
Africa in the 1990s" (UN-NADAF).
http://bankofbotswana.bw/Govn's_award.htm
ANOTHER CENTRAL BANK?
Do we have another central bank
on our hands? When I referred to the authority on the subject,
the Morgan Stanley Central Bank Directory, I could not find the
Trans-Dniester Republican Bank amongst its pages. Those in the
bank itself would doubtless protest at its absence. According
to its website, the bank "acts as the central bank of Trans-Dniester
Moldavian Republic on the international scene." Furthermore,
"the central bank serves criterion for the introduction of
the state into the European economic and currency union."
This is something that Moldovans would hotly dispute: they consider
what they refer to on their national website rather damningly
as the Transnistrian "republic" (note the inverted commas,
small 'r') to be a part of Moldova. I would welcome feedback from
anyone who has an opinion as to whether this institution can be
considered a central bank. Here is a link to their website:
http://www.cbpmr.net/eng/index.html
QUOTE OF THE WEEK
In a meeting with Treasury Select Committee, Sir Edward George, the governor of the Bank of England, demonstrated commendable central bankerly solidarity with his US counterpart. Alan Greenspan was quoted by a committee member as saying that the US recession "was over". Asked whether he agreed, Sir Edward replied: "I do agree with Alan Greenspan. What exactly did he say?"
New issue of the Financial Regulator journal out now!
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© 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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