News This Issue:

• Mervyn “The Lion” King Promoted
• Parliamentary Reprieve For Ukraine Governor
• Play More Golf Says Mboweni
• Bernanke Reveals Fed’s Secret Weapon
• ECB Looks To Pastures New
• Helping Paraguay A Hopeless Task?
• Central Bed
• Hayami's Spending Spree Begins

Mervyn “The Lion” King Promoted
Mervyn King will be the next governor of the Bank of England, it was revealed this week. With Sir Edward George in the post until June next year it is expected that the changeover will be smooth. But along with headlines announcing the arrival of the King, some are starting to worry that King’s management style and dominance of the MPC, coupled with a fierce reputation make him something of a Lion King.

Life at the Bank of England will certainly be different under Mervyn King’s stewardship. It will be interesting to see whether his forceful presence is reflected in the voting records of the MPC. King has a reputation as an interest rate hawk. He has often favoured interest rate rises or smaller cuts than the majority. In his 67 meetings on the MPC, the deputy governor has voted for tighter policy than the consensus on 12 occasions. Some former Bank officials say there was a sense among the staff that “you either belonged to his camp or you didn’t”. The kind of people likely to be promoted in King’s Bank will be highly trained economists with intellectual rigour and those lacking such skills may fear for their hopes of advancement. The appointment is bound to raise speculation that the Treasury is becoming more sceptical about UK membership of the euro with the publication of the results of the five economic tests for euro entry. But we say, all this is rubbish. All sensible people have reservations about the merits of the euro. Of course the central bank’s role is to deliver whatever the government decides on. As Gordon Brown said to parliament on King’s appointment, “I can assure the house that the same steady grip will continue.” However, it will be interesting to see if the Bank delivers its own verdict and whether it is asked to do so “by a competent authority”. The new deputy governor is likely to be a manager rather than an economist. Too many economists will just result in more squabbling.

Parliamentary Reprieve For Ukraine Governor
Despite calls for his resignation from both the prime minister and the president, Volodymyr Stelmakh, the chairman of the National Bank of Ukraine has won a reprieve from parliament by the narrowest of margins. The president’s call for his dismissal received 214 votes in the Supreme Council yesterday only 12 short of the majority needed.

Stelmakh has been under pressure for some time and voiced his concerns for his job in an interview published in Stolichnyye Novosti only a few days before the president’s proposal reached the parliament. The chairman said the moves by the government had breached the norms of both the constitution and laws governing the central banks. And as far as the motives were concerned: “It’s politics, pure and simple.” Stemakh also expressed his incredulity at the actions of the prime minister, Anatoliy Kinakh, in issuing a letter complaining about the central bank’s policies and personnel changes:

“As a professional, I was upset that the statement signed by the premier did not quote a single professional argument, not a single factual confirmation of what was stated, even though Kinakh and I had a thorough discussion of all these issues for 45 minutes. At that time Mr Kinakh did not raise a single complaint. And suddenly this piece of paper.”

With inflation at historically low levels, bank deposits growing, and the exchange rate vs the dollar stable during Stelmakh’s tenure, President Kuchma’s claim that the central bank’s policies have damaged economic growth seem unfounded. Kuchma’s proposal also included the nomination of Sehiy Tyhypko, a leader of a pro-presidential faction in parliament and holder of shares in the commercial banking sector, as successor to Stelmakh.

Sources at the central bank expressed “surprise” at the result as the pro-president coalition numbers 230 and therefore it appears that some parliamentarians “did not vote the way they should have done.” Employees at the central bank were glad that their chairman was still there, but they “do not know how long” he will remain, a source told Newsmakers. There remains an expectation in the bank that this matter is far from closed and another attempt may be made as early as December 10.

Play More Golf Says Mboweni
While Newsmakers has long been aware of South African Reserve Bank Governor Tito Mboweni’s passion for fly fishing, his love of golf came as a surprise to us. We hear that the central bank chief has even advised Thabo Mbeki, President of the rainbow nation, to take up the game. The challenge was duly undertaken and a spokesman for Mbeki said last week, "Sunday was his second golfing practice, but he's making unbelievable progress". Infact Mbeki even hopes to challenge the most powerful man on earth, the spokesman adding, "He said he would like to take on President Bush when he comes for a state visit in January". While South Africans love their games, and will host the cricket world cup next February, Mboweni’s advice has little to do with sport. Mboweni explained to South Africa’s parliament, “because through a game of golf with captains of industry, the president might be able to address their fears about South Africa's economy”.

While the President is a beginner, Newsmakers has no doubts about Tito Mboweni’s golfing skills, he’ll always hit the green. But whether the central banker hits his inflation target may prove something more of a concern.

Bernanke Reveals Fed’s Secret Weapon
Ben Bernanke, newly-appointed Fed governor and an advocate of inflation targetting, has revealed the Fed’s secret weapon in combating the perils of deflation: the printing press. And by saying the un-sayable, the tidy-bearded academic may have landed himself in a spot of bother. His willingness to opine on sensitive subjects with an academic’s approach does not fit with the more discreet world of central banks or finance ministries as John Taylor has recently discovered.

Speaking to a group of economists in Washington on the possibility of the US succumbing to a bout of deflation Bernanke unveiled his credible threat: "The US government has a technology, called a printing press or today, its electronic equivalent that allows it to produce as many US dollars as it wishes at essentially no cost," he is reported as saying.

Bernanke later sought to clarify his remarks saying he was committed to price stability, and that the government is fully equipped to deal with deflation. But the governor may have learnt that such academic honesty will need to be curbed if he wants to move any further up the FOMC table. As Newsmakers reported last issue, in a recent speech Bernanke admitted the Fed should take the blame for the 1930s depression. Is he gearing up for the next one?

ECB Looks To Pastures New
The European Central Bank has announced the launch of an international urban planning and architectural design competition for its new premises. The purpose of the competition is to identify the best design concepts for the ECB's future home and to select an architect to carry out the detailed planning work for the new premises and, if possible, to implement the project. The site will be developed to accommodate 2,500 workplaces, with office space and special areas covering a main usable area of approximately 100,000 m2, plus all the necessary parking areas and technical facilities. Architects need to get cracking, however, as Newsmakers learns the deadline for applications is January. The competition is open to architects from all over the world. An open call for candidature has been published in the Official Journal of the European Communities and on the ECB's website. A jury composed of internationally renowned architects and representatives of the City of Frankfurt and the European System of Central Banks (ESCB) will then short-list 12 candidates to be admitted to the second phase.

Newsmakers asks: just how large will the ECB Presidents office be? And will candidates for the position of architect, whose plans “don’t quite measure up” find themselves looking for another job?

We understand that the offices of the full-time executive director will be palatial. Funny that, as some outsiders think they actually don’t have enough to do.

Helping Paraguay A Hopeless Task?
The president of the Central Bank of Paraguay, Dr Raul Jose Vera Bogado, resigned on Wednesday 20 citing a lack of support from Congress for the government’s attempts to win much-needed IMF aid. "I'm frustrated that I haven't been able to find the backing from Congress needed to improve the economy", he said. Adding to reporters that “Hopefully whoever replaces me will have some better ideas to help Paraguay.” His resignation was quickly followed by that of the finance minister two days later who gave much the same reasons. The economy in Paraguay has been suffering contagion from the Argentine crisis and the local currency, the guarani, has lost over 40% of its value against the US dollar this year.

Dr Bogado is not alone in this sorry state however as South American central bank governors have taken a bit of a pounding recently. In July, in neighbouring Uruguay the central bank governor Cesar Rodriguez Batlle had to call it a day when the finance minister resigned as he lacked political support in the midst of financial crisis. And in Argentina, where the troubles originated with its devastating debt default in December 2001, central bank governors have found the job tricky to hold down. Before the present governor Aldo Pignanelli took charge in June, Mario Blejer gave the job a crack but only lasted six months in the face of constant disagreements with the finance ministry and even fears for his own personal safety, he decided to quit. Roque Maccarone before him lasted only a little longer with nine months on the clock, but after Argentina's cataclysmic default, he forgivably did not feel too comfortable staying on.

Then there is Brazil, where Arminio Fraga who with Carlos Massad of Chile counts as among the most distinguished governors in the subcontinent is counting his days as the country's new president 'Lula' would prefer to have one of his own appointees in charge of the central bank. Newsmakers can also point to the cases of Honduras and El Salvador where the previous governors left before their terms expired over the last year.

Central Bed
Newsmakers was concerned to learn that a boy who ran away from his home in Ireland has been sleeping rough, but not just anywhere. Dublin children’s court heard last week that because his father did not want him at home the boy had since been seen sleeping rough on the steps of the Central Bank of Ireland in Dublin. Latest reports suggest the family are patching things up.

Newsmakers always has sympathy for those down on their luck, but this Eurozone citizen need only look towards London and the Bank of England to realise he is not the only one left out in the cold.

This reminds us of the story of the boy who asked his dad, “What shall I do when I grow up? The father replied, “Nestle close to the source of the money supply.” Good advice, but not to be taken too literally.

Hayami's Spending Spree Begins
The Bank of Japan’s programme to buy shares from the country’s ailing banking sector officially started 29 November, but the bank is being coy about any actual purchases. Masaru Hayami, governor at the bank, outlined the central bank’s aims when speaking to parliament on Thursday 28, saying: "We want to help create an environment where banks can restore their health by reducing their risk to stock price movements. It is a temporary measure with a limited timeframe." However he remained guarded on the timing, again saying to parliament: "Just because we begin the scheme on [November] 29th does not mean it will be used immediately that day." The central bank does not plan to disclose the names of the banks or the shares involved in the purchases, but the money involved will of course show up on its balance sheet published every ten days.

However, Asahi News reports that the Bank of Japan appears to have been offered $41-49m worth of shares from a group of banks including Sonari group and Chuo Mitsui trust bank. With a limit of $4.1 billion per bank it appears that Hayami is still only window-shopping in Otemachi. And with a total budget of $163 billion to use up by September next year, Newsmakers thinks he had better get a move on.