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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.

31 March 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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Avast Invaders!

Newsmakers reports from the war zone...

All hands are on deck as central banks take stock of the escalating crisis in Iraq. At a guess, the most twitchy of all might be Iraq's own central bank, whose very livelihood is on the line as events draw menacingly closer to what seems to be their inexorable conclusion. The governor of the central bank, Issam Rashid Hwaish, has poured vitriol on the announcement that overseas assets held by the central bank (as well as other government funds) are to be seized and transferred to the New York Federal Reserve. He has denounced this as an "act of piracy", as "these deposits enjoy the protection of the party that decided to freeze them" -- in other words the UN Security Council which did so back in 1990. Hwaish says that therefore "US authorities are committing a new stupidity by violating international law."

But this is not all Hwaish has to worry about. Washington has long been plotting the replacement for Saddam Hussein's regime, and that does not exclude plans for rebuilding the central bank as well as possibly issuing a new currency in postwar Iraq. It has been conjectured that the dollar may become the de facto currency, though some have suggested that perhaps the currency used by the Kurds in northern Iraq, the "Swiss print" dinar, might replace the dinar which is in circulation in the rest of the country. "Whatever it is, it will not be a currency with Saddam Hussein's picture on it," according to one senior US official.

What's more, it will presumably not be up to the central bank. But by all accounts, the Iraqi central bank doesn't have much say in such matters anyway. According to dissident former governor of the 1970s Salah Al-Sheikhly, who is now one of the lynchpins of the opposition movement against Saddam, "the central bank no longer performs its institutional role in the economy... It doesn't regulate exchange rates or interest rates; these decisions are controlled by the regime. In reality, Saddam and his sons control the printing presses and they are just manufacturing more money." No surprises there. A political exile based in London and no friend of Saddam, Al-Sheikhly says Saddam has done for the Iraqi economy by racking up prodigious debts with unfettered military spending -- to the tune of $112 billion according to his estimates. "It is with governments like Russia, France and Bulgaria for the supply of arms," he has said. Along with other economists, he has been working with the US State Department and Treasury to come up with an economic plan for postwar Iraq, favouring a scenario such as took place in former Yugoslavia where 66% of its debts were forgiven.

Iran -- Nourbakhsh Dies

Neighbouring Iran's central bank has experienced trouble of a different kind. Sadly, the governor died prematurely of a heart attack last weekend at the age of 54. Mohsen Nourbakhsh was hurried to hospital in northern Iran where he was presumed to have been on holiday for the Iranian new year. For the time being, the deputy governor of the central bank, Mohammad Javad Vahhaji, has taken over as the interim governor, until a new governor is appointed.

Nourbakhsh, an accomplished American-educated economist, began his second innings as governor in 1994, having been governor in the mid-eighties before transferring to the government where he was finance minister for six years. But on returning to the central bank his relations with the finance ministry soured as he was constantly at loggerheads with the finance minister, Tahmaseb Mazaheri, who stood in the way of Nourbakhsh's attempts to raise interest rates. Disagreements reached a stage where recently it was rumoured that certain members of parliament were plotting his removal. He is said to have "strictly controlled Iran's banking and monetary system" according to one Iranian economist, and the loss of Nourbakhsh is said to have significant implications for Iranian economic policy -- under Nourbakhsh the central bank was said to be almost like a rival ministry, with a great deal of influence over major economic policies.

Nourbakhsh played a pivotal part in the rehabilitation of the obliterated Iranian economy in the aftermath of the devastating war with Iraq during the 1980s. President Mohammad Khatami, with whom Nourbakhsh was said to be close, described him as a "very sincere, intelligent and capable serviceman", while the council of ministers said he had played a "key role in putting shape into the monetary policies of the country by unifying the Iranian currency and establishing a reserve fund [for the surplus oil revenues] as well as [helping with the] eye-catching rise of the central bank's reserves." The IMF put a good word in for Nourbakhsh too. Its top gun, Horst Kohler, said, "Nourbakhsh will be remembered as a person who played a key role in Iran's economic development and promotion of transparency in decision-making of that country." A tribute to Nourbakhsh from the central bank website: http://www.cbi.ir/nourbakhsh/MASJED-NOURBAKHSH.MP3

Business As Usual In Turkey

Other central banks in the region have reacted with admirable equanimity in the face of the crisis in Iraq. Central banks are notorious for denying anything is amiss when plainly it is -- defending pegs when devaluations loom is a prime example -- but this may not be the case right now.

In Turkey, the central bank is taking things in its stride. The vice-governor of the central bank, Professor Fatih Ozatay, reminded Newsmakers that "the central bank has a lot of experience from the Gulf war of 1991" and it was well aware that "financial stability is a must". Although he cautioned that the main thing is that fiscal policy "should be further tightened", he said the central bank is fully prepared for every eventuality: "As the central bank, we are targeting inflation and our main aim is price stability, but since there is a war, financial stability takes the first priority." Ozatay also pointed out that "the smooth functioning of the foreign exchange market during the war is important"; consequently measures have been taken to meet additional demand for foreign exchange and the central bank stands ready to intervene if necessary.

Stiff Upper Lip In Russia

Sergey Ignatyev, the governor of Russia's central bank, breezily reassured President Putin that there was nothing to worry about: "Our currency reserves enable us to prevent any significant rouble rate fluctuations in the near future. As for long-term prospects, it would be premature to talk about possible consequences but I think they will be insignificant."

...And Kazakhstan...

Meanwhile the governor of the central bank in Kazakhstan, Grigori Marchenko, tells Newsmakers that, bar a "terrible ecological disaster", the war is only a concern insofar as it will affect oil prices, oil being the cornerstone of Kazakhstan's burgeoning economy. But as long as prices remain between $20 and $30 a barrel, Marchenko says that Kazakhstan would not be affected, and he prefers to remain optimistic.

...And Georgia...

Similarly in Georgia, which does not have large oil reserves, the central bank tells Newsmakers that the war is having "no impact on the banking system", although it understandably hopes that it will be over as soon as possible.

...And Lebanon?

The governor of the Lebanese central bank, Riad Salamé, has announced that "Lebanon has sufficient defences to face the negative effects of a war on Iraq, which are mainly higher energy prices and a disruption in exports to Iraq." Of course, he observed, the bank's ability to cope would ultimately "depend on the duration of military operations and their impact on the economies of Gulf countries."

What The Bernanke!

Ben Bernanke, the tidy-bearded maverick Fed governor, has taken no time to find his feet at the Fed, though some may question whether he is punching above his weight. Amongst his first acts as a governor was to take it upon himself to apologise, on the Fed's behalf, for causing the Great Depression in front of the great monetarist icon Milton Friedman himself. That small matter out of the way, he then saw fit to dispel any fears of deflation, by unveiling a newfangled device, the printing press, as the "secret weapon" and reminding every one of the central bank's hyperinflationary potential. Not content with this, he now has initiated a full and frank discussion of how the US monetary policy regime should function with his fellow governors -- not all of whom share his opinions -- arguing that explicit inflation targeting might not be such a bad thing.

Kohn Demurs

At almost exactly the same time, Donald Kohn, who also sits on the board of governors, gave a speech apparently in direct contradiction to Bernanke's, declaring his doubts as to the desirability of implementing an inflation-targeting regime. All this as the US goes to war, with Greenspan's future uncertain, oh and an enormous fiscal deficit on the way. While Bernanke is to be commended for his openness, Newsmakers can't help wondering what Alan Greenspan makes of all this. Has he reminded the professor that the Fed is not a study group, and that solidarity, rather than one's economic reform agenda, should be the order of the day? Has he asked him to read a recent paper from the BIS? This suggests that too much transparency from a central bank may not be altogether a good thing: should the Fed close the discount window on Governor Bernanke's open-mouth operations?

The Feud In Israel Continues

Israel's finance ministry keeps on picking on its central bank. Most recently the finance ministry has made the central bank its scapegoat for Israel's economic sorrows when it published a report excusing itself for the economy's below par performance. It may not come as a surprise to some that it has charmingly blamed much of this on the central bank's "too restrictive", "unresponsive" and even, in a brilliant use of language, "anaemic" monetary policy. It made a transparent dig at the central bank governor, David Klein, when it bare-facedly stated that "Bank of Israel policy differs from that of other central banks, which adapt to the real situation of the economy." The shameless report even went as far as to say that, far from correcting any imbalances, the central bank had actually "hindered the process of economic recovery to a large degree."

All this may go some way to explaining why the government thinks that it is paying its central bankers too much. Palpably traumatised by what some of the central bankers are being paid, the treasury's wage director has ordered its enforcement unit to investigate the legality of these salaries. The leader of this enforcement unit has concluded that "what is going on at the Bank of Israel is shocking... Its workers are earning salaries that are out of all proportion." For its part, the Bank of Israel has observed that "the wages of the bank's employees are set in accordance with both the collective agreements for the civil service and the law, for whose enforcement the wage director is responsible." What is more, since 1987, the number of staff at the central bank has shrunk from 1,225 to 850 -- a 30% reduction, which saves the taxpayer tens of millions of shekels annually.

The IMF has sent reinforcement by recommending full independence for the besieged institution. A new Bank of Israel law would protect the governor of the Bank of Israel from being fired over policy differences and should also stipulate price stability as the sole objective of monetary policy, thus abolishing the exchange rate fluctuation band. http://www.imf.org/external/country/ISR/index.htm

Getting Governments To Behave Themselves

Newsmakers' heartfelt pity goes out to the many central banks whose ability to operate effectively is being cruelly hampered by meddlesome and mischievous governments. Israel is far from being the only case in point. Central bankers in Poland are aghast at prime minister Leszek Miller's most recent blasé announcement that he might abolish its monetary policy council. Not content with the central bank's monetary policy, which is rather too tight for his liking, and perhaps not sufficiently politically expedient, Miller struck on this amazingly original solution to his conundrum. But with any luck Poland will squeeze into the euro zone before Miller gets his eccentric way.

Then there is Venezuela. Former central bankers are so scandalised about the state to which the central bank has been reduced by the country's populist president Hugo Chávez that they have described it as "a monetary branch of the government." Eleven former senior executives have signed a document alleging that the central bank is breaking its constitution by endorsing government policies: "Monetary policy is now subordinate to fiscal needs and this has led to non-compliance with the constitution." They cite three ignoble episodes as proof of this: in August 2000 when the finance minister "decided to confiscate" a generous quantity of central bank capital; in October 2001 when the central bank law was fiddled to deny the central bank the ability to establish its reserves; and in November 2002 when its law was further perverted to allow the Treasury to liberate what it must have considered to be excess funds from the bank.

But this pales into insignificance in comparison to Zimbabwe's central bank, which may be the least independent in the world. Lovemore Kadenge, the president of the Zimbabwe Economic Society, insists that the government is able to help itself to central bank money to its heart's desire. Lucky it. Or not, depending on which way you look at it, when one considers that in the long run, the consequences are disastrous. Who was it who said that in the long term we are all dead?

An Unintended Dispute

In fact, Newsmakers was recently fortunate enough to get some first hand experience of the rocky relationships that so often exist between finance ministries and central banks. At an exclusive dinner party in Istanbul replete with central bankers and finance ministers from the Caspian region, Newsmakers, perhaps unwisely in retrospect, elected to sit next to a befriended central banker -- without taking the care to check who else was supposed to be sitting at a table with limited seats. It had been reserved for the delegation from the country of the central banker in question, and Newsmakers had sat in the seat intended for the finance minister. The latter was of course deeply offended when it transpired that there were not enough seats for him and his henchman to sit together and stormed off in a huff, bad-mouthing the central banker who had been noble enough to endure our presence. One more rift between central banker and finance ministry, as if there weren't enough already. Are they all caused by such trifles?

10 March 2003

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By Benedict Mander
Central Banking Publications
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ZERO CONCERN

Raise your glasses, please, for Alan Greenspan (KBE), who turned 77 on 6 March. Now that Japan's Hayami has at last surrendered his position as the world's oldest central banker, Greenspan can truly lay claim to being the paterfamilias of the central banking clan. Surely a well-deserved birthday present. But many Republicans would be loath to wish Alan a happy birthday, given his recent unwillingness to endorse President Bush's recent controversial tax cuts. Inconveniently for the US administration, Greenspan observed that this would either need to be offset with counterbalancing tax rises, or a cut in the budget -- worrying, as he does, that the US's bulging budget deficit might just spin out of control.

The Republicans, reaction to Greenspan's remarks ("seriously wrong", said one) have caused Democrat Senator Charles Schumer to excoriate what he phrased "an ongoing orchestrated whisper campaign to discredit" the Fed boss, and he seized an opportunity to ingratiate himself to the supremo by lauding Greenspan's "outstanding leadership" and "exemplary conduct". But some Republicans are suggesting, rather absurdly, that the White House considers Greenspan such a nuisance that he may not be reappointed to a fifth term. Schumer believes that "all of this whispering and all of this desire to sort of muffle the Fed... to say that the chairman ought to go, that the chairman's outlived his usefulness, I think is very bad..." No wonder, then, that Glen Hubbard, the White House economic adviser who himself aspires to fill Greenspan's shoes one day, was compelled to state, "We all have great confidence in Chairman Greenspan. He is one of the finest chairmen we've had... The chairman of the Fed has the right to cast independent views. We have zero concern." Hearing is believing? It just so happens that Mr Hubbard has since resigned.

IMF ON THE MOVE?

Smooth talking IMF spokesman Tom Dawson almost slipped up at a recent press conference when quizzed about the possibility of the relocation of the IMF's offices to Europe. This is of course a pretty big deal, given the American stigma that so many (ill-informed?) people identify with the multilateral institution, but Dawson dismissed the question, remarking, to much hilarity, "I'm not sure it's my job to share rumours with you." He added that, in fact, "I think my job is to dispel rumours." Indeed. He went on quite rationally to explain that the Fund's articles of agreement state that it shall be headquartered in the country of its largest shareholder, and that a move to Europe would require Europeans to combine their shares, and, he said, "I have not heard any rumours on that one, though I -- I won't say what I was going to say. I'll get in trouble." Woops. But what was he going to say? Some kind of dig at the Europeans? Thankfully his self-preservation instincts kicked in, otherwise he might soon have found his job on the line, if these rumours are to be believed.
(see the transcript here: http://www.imf.org/external/np/tr/2003/tr030304.htm)

Talking of moving offices, the ECB is looking to employ someone specifically to tell people that that is what they are doing. Why on earth not? Might help boost the economy.
(see here: http://www.ecb.int/job/ecb03076.htm)

A BIG CHANGE AT THE BANK OF JAPAN

The changing of the guard at the Bank of Japan may make for a bigger shift in policy than most commentators are saying. People who know him well say that Toshihiko Fukui, the new governor, quite apart from being a delightful person, may be more flexible on monetary policy issues than people are saying. Ten years younger than his predecessor, Masaru Hayami, at 67, he may less opposed to the job of fighting deflation. Prime Minister Koizumi's decision to appoint a so-called "conservative" figure like Fukui has sustained trenchant criticism, but this criticism may be -- one hopes is -- wide of the mark.

Fukui is presumed to have been indoctrinated during his previous 40-year stint at the BoJ, reaching deputy governor before resigning and becoming head of a private think tank, the Fujitsu Research Institute. He had in fact been expected to replace former BoJ governor Yasuo Matsushita, but was foiled when they were both forced to quit in 1998 after a senior BoJ official was ignominiously arrested, suspected of leaking market-sensitive information to banks in return for lavish corporate entertainment and fancy golfing holidays.

Although Fukui has argued that inflation targeting could be a dangerous gamble and has said that it is hard to think of it as a "magic wand", he has not in fact ruled out the possibility of introducing the system in Japan. But the real question is whether Fukui did a deal with the prime minister to accept surprising choices of people for his deputies, and a commitment to more stimulative policies.

Kazumasa Iwata and Toshiro Muto have also been appointed to the nine-member policy board alongside Fukui, and Iwata in particular is known to hold more radical and reformist views. Iwata is a senior official at the cabinet office and a professor at the University of Tokyo, and favours less "orthodox" policies -- notably large monetary base expansion. He is also a supporter of pro-reform economics minister Heizo Takenaka.

Muto is a former vice finance minister and it is hoped that he will help to improve relations between the ministry of finance and the central bank, one of Koizumi's stated aims. It is very unusual to have such a top (permanent secretary level) person from the finance ministry appointed to the BoJ deputy governorship. Then there are really able people among the non-voting but influential members of the monetary policy board, notably Messrs Shirakawa and Hirano. These are intellectual heavyweights among the BoJ career central bank personnel.

The change in the composition of the board has lead analysts to comment that there will be more heated debates with fewer unanimous votes as more radical alternatives are tabled. They think that there will eventually be more determined monetary easing. The new BoJ is a different animal.

EDDIE CHIDES ECB

At a stately do in the Savoy in London surrounded by various corporate musclemen, Antonio Fazio and Sir Edward George (governors of the Italian and British central banks respectively) enjoyed an afternoon of back-slapping on being jointly presented the Keynes Sraffa Award, which recognised the recipients' contribution to the strengthening of the economic relations between the two countries. In his unerringly erudite acceptance speech treating the progress of economic theory over the centuries, Fazio found space to put in a topical plea for peace: "The experience of two world wars, with their legacy of death and destruction, must impel us to relegate war to the past as a means of solving international disputes. Great philosophers have taught us that peace lies at the core of the future of humanity... It is necessary to oppose all forms of violence."

But Eddie's comments were rather more bellicose than Antonio's. Having dispatched with the mandatory gushing about his "warm personal relationship with Antonio" and deferring to his counterpart's greater stature as an economist ("I wasn't cut out to be an academic economist," Eddie explained), the outgoing BoE governor changed his tune. He seized this opportunity to take a few last-minute pot shots at the ECB before his central banking career comes to an end, hinting obliquely that the ECB had been slow to cut interest rates. He remarked that the ECB is "less proactive" in monetary policy terms than his own, exemplary, central bank, because of the ECB's longer-term time horizons. But he emphasised that it was only "a matter of degree", and conceded that there are "no simple answers to how to respond" to changes in the economic environment. Excusing his presumptuousness, he said, "I don't seek to make judgements as to which is better" -- but more recently he was less compromising. Could his exasperated comment, "I see my European colleagues more often than I see my wife", go some way to explaining his current feelings about the ECB?

Testifying on the UK and the euro, Eddie was more explicitly critical of the ECB's sluggish response to changes in the economy, going as far as to suggest the introduction of a "technical committee" to propose policy to the decision-making board which would diminish the "risk of conservatism" lying in such a large body and help "to move things along". This provoked a nettled remark from Wim Duisenberg at the latest ECB press conference following its recent cut in interest rates (by a modest 0.25%), who raged, in response to a question on what he thought of Eddie's unprecedented criticisms, "Well as you say, you have never seen one central banker telling the other one what to do. You have now seen an exception. But that will remain the exception." Stirring stuff.

NEW FACES AT THE BANK OF ENGLAND

If Eddie is demob-happy, others are preparing to move into the governors' offices. Great things are expected from Mervyn King, the most distinguished economist to become governor of the Bank. The Bank is also to be graced with its first female deputy governor in its 300-year history, who happens to have spent 27 years of her lifetime at the Bank's opposite number, the Treasury. Are the cynics who say this is Gordon Brown's revenge for having had to accept an internal candidate (Mervyn King) to assume the governorship in July to be believed? And Stephen Nickell is the first external MPC member to have been reappointed. What makes him better than previous competent MPC members? Has Britain run out of monetary economists already?

Appointments to such high-level positions rarely come without comment or criticism, but allegations that Rachel Lomax is being foisted on the Bank as a "Treasury stooge" are potentially damaging to the Bank's claims to be independent of political meddling. They are also grossly unfair. Lomax is a highly qualified individual, having been educated at Cambridge and the London School of Economics, combining strong economics with redoubtable management skills. She is taking on the big job of deputy governor for monetary policy, succeeding Mervyn King himself in that powerful role.

Apart from several high-ranking positions in the government, she was also vice-president and chief of staff at the World Bank from 1995 to 1996. Rumour has it that the reason her stay was so brief was that she had an almighty bust up with Jim Wolfensohn, provoking some to speculate that she has something of a temper (but most put it down to Jim's oversized ego). She is clearly an independent-minded lady, pioneering the feminist cause at the Treasury in the seventies when she negotiated time off to look after her newly born children.

Rachel Lomax has said of her rise through the Treasury, "If you stick around in an institution like [the Treasury] for long enough, they forget you are a woman." Well, the men at the Bank would be rash to make any such assumption, and she will be flanked by two other women on the MPC, Marian Bell and Kate Barker. Former MPC member Sir Alan Budd, who worked with Lomax at the Treasury, said in her praise: "This is a really first-class appointment, and the Bank of England is really lucky to get her." To which we say, "Here, here."

DOVES VS. HAWK?

Then there is Richard Lambert, a former editor at the Financial Times from 1991 to 2001, having worked there since 1966. His lack of any formal grounding in economics (he read history at Balliol, Oxford, a subject not even nowadays on the national curriculum) is noteworthy, but he is widely respected in the City, having also been director of AXA and the LIFFE -- these posts will be relinquished when he joins the MPC in June, when Christopher Allsopp leaves. He has also been a member of the well-publicised "shadow MPC" set up by The Times newspaper last November, which publishes its own hypothetical voting decisions parallel to the real MPC votes. Lambert has voted three times for no change, and once for a cut; does that make him a dove? Not necessarily.

In fact, recent appointees to the MPC, in particular internal Bank people Sir Andrew Large, the other deputy governor (for financial stability), and Paul Tucker, head of monetary operations, have shown an independent spirit by voting against the flow. With an extra two fresh faces, some say that debate in the MPC may become rather more lively than it has been in the past (but how do they know?).

Richard Lambert will bring to the table an editor's instinct for clarity and plain speaking -- not virtues one immediately or necessarily associates with central bankers or economists. Other commentators say that the changes mean that the MPC is now stuffed with doves, as well as, interestingly, having a majority of europhiles. Is the Treasury ganging up on hawkish eurosceptic Mervyn King, ensuring that he is outnumbered on the MPC? Is Labour packing the MPC with doves who will drive rates down to the floor to boost the economy before the election due no later than 2006? Perish the thought.

This talk about doves vs. hawk is mostly nonsense. People change their views as the world changes. As deflationary tendencies strengthen (with the UK outlook getting worse somewhat faster than Eddie George had led people to expect), it is no bad thing to have people with a mixture of perspectives and career experiences getting their hands on the monetary levers. The MPC has plenty of economic firepower already. In fact, the really good thing about both new appointments is that they bring wholly new perspectives from the great world outside to the MPC. With such people on board, it will definitely not become an academic debating society.

HILDEBRAND FOR THE SWISS NATIONAL BANK

The three-member board of the Swiss National Bank is to get a new member too, as the respected vice-chairman Bruno Gehrig is to bow out of central banking to become chairman of insurer Swiss Life. Unkind rumours allege that Gehrig, slighted at not being chosen for the chairmanship which Jean-Pierre Roth now occupies, decided to try his luck elsewhere. In any case, he is to be ably replaced by the spry Oxford-educated Philipp Hildebrand, who at 40 will be one of the youngest of the SNB directorate. He will run the department in charge of conducting monetary policy, reserve management and payment systems. No doubt his background in both banking and academia (he has a number of publications to his name) will serve him well; and he is well respected in government circles, with his advice sought over Switzerland's bust-up with the EU over savings tax and bank secrecy.

THE ENIGMATIC SMILE OF LUCAS PAPADEMOS

Forget scrapping between the ECB and outsiders, what about the internal squabbling that has recently besmirched the ECB's reputation? Amusingly or not, Lucas Papademos's smile has been the subject of much speculation and inference. Columns were filled to bursting in the financial press this week when the corners of the ECB vice-president's mouth curled at the mention of staff inflation projections. Such tracts are not known for their comic qualities, least of all among central bankers. So what was the reason? Was it a sarcastic slight on Dr Issing and his team? Was this flicker of indiscretion a moment of catharsis for those long suspicious of the retentive monetarist dogma that dominates in Frankfurt? A call to arms for ECB doves? Unlike Leonardo's masterpiece, however, the former governor of the Bank of Greece is able to talk as well as smile enigmatically, and he admitted in Thursday's press conference the full extent of his differences with the good doctor: "There are no tensions whatsoever. Occasionally, we do disagree: I think that sometimes he tends to prefer Bordeaux and I prefer Burgundy. This may complicate sometimes the decisions in the council on which wine to choose for the lunch. But that's it."

A CASPIAN CALL TO ARMS

Look out for a cluster of central bankers roaming the streets of Istanbul shortly, as Turkey's government hosts a high-level meeting of governors and other representatives from central banks (as well as finance ministries, stock exchanges and multilateral organisations) from countries around the Caspian will gather to discuss a variety of economic issues. Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Ukraine and Uzbekistan will be represented, and discussion will centre on central banking reform, currency convertibility, foreign exchange reform, the regional securities market, as well as the ongoing privatisation of state utilities and infrastructure. It is hoped that progress will be made in improving the underdeveloped and undercapitalised banking network in the former Soviet Union states, which are greatly in need of foreign investment and technical expertise. The planned reform of investment regulations, collateral laws, accounting standards and bankruptcy legislation is expected to stimulate this, and they will also discuss their commitment to the regulation of regional banking laws to combat money laundering. Visit to find out more:
http://www.bemltd.com/Pages/Shows/programmes/CaspianFianace03.htm

KENYA'S GOVERNOR DISCARDED

Embroiled in controversy, and under severe public pressure, the governor of Kenya's central bank, Nahashon Nyagah, had no real option but to call it a day. He lamented, "When I realized that the public was being orchestrated to sacrifice me, while nobody on the government side raised a finger, it was time to say kwaheri [goodbye] and move on." Nyagah was forced to resign over the alleged mishandling of the liquidation of Euro Bank, which was discovered to be mired in unsustainable debts, as some $17.5m of public funds seemed to disappear into thin air. Nyagah continues to assert that he is free from censure, instead blaming public institutions that pumped money into the crippled bank.

Nyagah is now calling for a public investigation into the scandal. He put in question the very independence of the central bank, claiming that it is held in a vice by the finance ministry, to which the central bank must refer whenever it is to do anything significant, and for this reason there was a delay in closing down Euro bank. He complained, "There will be no independence of the Central Bank of Kenya as long as one has to consult the Treasury before making a move. While we have had no major problems, there is simply no latitude for action." Immediately on receiving clearance from the finance ministry, however, the central bank moved to shut down the bank, but not before.

He also made clear that his decision was personal, and dismissed hurtful rumours that his family had been attempting to engineer his safety: "I can tell you that no member of my family was at State House to see the president over my case. In fact my old Mzee [father] was in Mbeere [central eastern Kenya]. There really was no need for any intervention."

Nyagah's resignation comes at a time when Kenya's new president, Mwai Kibaki, has promised to sweep out all the "corrupt" officials appointed during the previous government. He has already found a replacement for Nyagah in the shape of Dr Andrew Mulei, an economist with vast experience in African public finance positions, including working at the IMF and as adviser to the central bank governor. He has most recently headed the African Centre for Economic Growth, a Nairobi-based think-tank. He will be the sixth indigenous governor since Kenya's independence.

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Centennial Precious Metals Gold coins & bullion since 1973 P.O. Box 460009 Denver, Colorado 80246-0009 We educate first-time investors!

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USAGOLD Rated A+