News This Issue:

• Déjà Vu
• And In Brazil...
• Brash Praises Mendzela
• Season's Greetings
• It Wasn't Me
• A Good Day To Go To The Sauna?

Déjà Vu
It’s becoming rather repetitive. Argentina is now onto its fourth (yes, fourth) central bank governor in the past twelve months. Newsmakers wondered at the time of his appointment at the end of June how long Aldo Pignanelli would last in the job - well the answer is, 21 days longer than the last one! (Mario Blejer, remember?). Well done him - he managed to grip onto the bucking bronco that is the Argentine central bank governorship for no less than five and a half (what must have been very long) months - a total of 170 days (it is beginning to seem more appropriate to measure the length of tenure of the governor of the Argentine central bank in days rather than months - or years, come to that). Pignanelli kicked it all in at a summit in Brasilia, not able to see eye to eye with Lavagna over talks with the IMF since he took on the job, favouring repayment to international institutions. The straw that broke the camel’s back was reportedly Lavagna’s decision not to send Pignanelli a copy of the final draft of the most recent letter of intent between Buenos Aires and the IMF.

Let’s see how the next one fares. If he, Alfonso Prat Gay, can break the six-month barrier, then he’s a better man than, well, most people. He is certainly young enough to bring some verve and spirit to the job, at a sprightly 37. That actually makes him one of the youngest governors on the circuit, pipped to the post by the greenest of all, Irakli Managadze from Georgia. If Prat Gay can make friends with the economy minister, Roberto Lavagna, then he may be in with a chance, as constant run-ins with the government seem to be a recurrent ailment of the governorship of Argentina’s central bank - although he is more of an orthodox liberal economist compared to Lavagna’s more radical, interventionist approach.

But it is hoped that Prat Gay stands a better chance. Previously a highly respected currency analyst at JP Morgan, and Alfredo Atanasof (Argentina's chief government spokesman) has said of him: “He is a young, independent man who will strengthen the central bank's independent role, and has shown that he wants to sustain the level of foreign reserves and maintain economic stability.” In fact, he was actually nominated to the post of vice-governor by the previous economy minister, Domingo Cavallo, who is now in rather bad odour. He had invited Prat Gay to join the central bank in mid-2001, although his appointment was at the time deemed unconstitutional owing to a law that Cavallo since had amended, to do with the conflict of interest of his previous job in the private sector and working for the state. This law will still mean that he has his hands tied, and if the law is to be followed strictly, he ought not to be able to participate in meetings with private creditors or hold talks with investment banks in competition with JP Morgan, or even take decisions on the regulation of local banks. It remains to be seen to what extent this will hinder his performance.

Another question is how long his term is to last. Cynics will counter that that should hardly matter, given that he’ll become legendary if he lasts more than a year. At the moment he is on a temporary contract, as Pignanelli was, but opinion is divided as to whether he should remain so until Duhalde leaves power or whether he should be given a fixed term, although it would be unlikely that this would be the full six years that the constitution allows. It is possible that he may be allowed to complete the legal term cut short by Pedro Pou’s departure - that would take him up to September 2004. But all of this could be purely academic, although let’s hope not. As one official said of him recently, “He could become the Arminio Fraga of Argentina.” Good luck.

And In Brazil...
Meanwhile, Brazilians and international investors are breathing again now that it has finally been announced who is to succeed the revered, soon-to-be-ex-governor of the central bank in Brazil, Arminio Fraga. A tough act to follow, but Henrique Meirelles is the one who finally accepted the job - several candidates are said to have declined the offer, on grounds of uncertainty and the rather off-putting judicial inquiries into the alleged misbehaviour of former central bank governors, but Meirelles said he was satisfied with the guarantees he was given. Meirelles seems keen to give it his best shot, and his appointment has been received extremely positively by commentators and economists. He is a trained engineer and economist himself (with letters after his name from Harvard), and was previously the head of FleetBoston, so he is of their kind, and seen to hold orthodox views. He did however resign from his position in August to run in the elections: he won a seat (which he has now had to relinquish) for the main right-wing opposition party, which happily does not seem to have worried left-wing Lula, Brazil’s president-elect. Meirelles is seen to have a great capacity to put together a good and cohesive team; his greatest challenge will be to win back credibility from international creditors. This should be feasible as he is already well known by foreign investors. Although he has a great deal of administrative experience, one handicap could be his lack of technical expertise, although some say this is only a small detail as he can draft in people with such expertise to assist him. So now all eyes are peeled to see what further appointments will be made in the central bank. There should be plenty more changes to come yet.

Brash Praises Mendzela
A recent article that appeared in the Financial Times Observer column picked up on a couple of articles that were published in the latest edition of Central Banking journal (which the FT kindly described as “a must-read bible among the world's half a million central bankers”!) and were critical of leadership in central banks. It quoted the editorial which suggested that central banks should be run more like businesses, as well as an article by John Mendzela, who was hired by the Reserve Bank of New Zealand to help improve its efficiency over a decade ago. Although neither of these articles made any mention of the Bank of England, the FT piece made the link with the recent announcement of Mervyn King’s appointment to become governor of the Bank of England when Eddie George’s term expires next June, but said that King was unlikely to be seeking Mendzela’s help as the Bank had “never heard of a John Mendzela”.

Be that as it may, he did in fact play a central role in achieving some pretty impressive things at the RBNZ. Don Brash, the governor of the bank at the time, told Newsmakers how a new law meant that the RBNZ would have to cut its budget back to $56.7 million per annum (a number that Brash says is “indelibly burnt into my memory!”) for the five years beginning 1990/91, as well as depriving the bank of its seigniorage income. Although Brash was “very worried” about this, “John Mendzela scoffed at my nervousness, and assured me that we could ‘easily’ live within that annual figure for five years. He was embarrassingly correct - by 1994/95, the fifth of the five years, we were under-spending the agreed annual figure by 38 per cent!!” Consequently Brash has a “very high regard” for Mendzela, and while “no one person deserves all the credit for the improvement in efficiency at the RBNZ (we reduced staffing from 550 to 185 during the 14 years I was Governor, with basically unchanged functions), John Mendzela was certainly one of those who made a very useful contribution to that process.”

Season's Greetings
Don Brash’s successor, Allan Bollard, has confounded those who are used to scrutinising monetary policy announcements for the slightest innuendo when they received an announcement of a rather different kind from him recently. It came in the form of a rather innocuous-looking Christmas card that Bollard designed himself (something he also used to do at the Treasury - Bollard has joked, “Every job I've been in I have tried to improve the quality of the coffee and the Christmas cards”) bearing the (seasonal?) message, “stability is next to godliness”. There was also a picture of Goldilocks sitting in between a bull and a bear eating hot and cold porridge respectively, as well as a neat little rhyme elaborating on the picture. Analysts simply didn’t know what to make of it. Was there a hidden message there, somewhere? What exactly was Bollard trying to communicate? One commentator suggested, in all seriousness, that the message could be interpreted as “a secret desire by the Reserve Bank Governor to achieve price stability, rather than inflation of 1 to 3 per cent” and consequently an increase in interest rates could be expected soon. Another was taken by the inclusion of the word “almost” in the poem (see link), which clearly indicated a shift in the bank’s until now neutral stance in monetary policy, and that concerns for inflation may prompt an interest-rate rise. All hot air of course. Central bankers will know better - Bollard was just poking some gentle fun. As Bollard told Newsmakers, “The card was intended to spread Christmas cheer and tease those who take monetary policy pronouncements too seriously.” Click here to see an example of the card: http://cards.intergen.net.nz/C78F2B0D9BF742288B6FC759635C9F96.htm

It Wasn't Me
Hudayberdi Orazow, the fugitive former Turkmen central bank governor, and one of the crusaders struggling to rid the benighted country of its crazed tyrannical president, has alleged that the recent assassination attempt on President Nyyazow was in fact “a poorly staged pretence”. He ridiculed the notion that anyone would trouble themselves to attack the president while in his armoured car: “Everyone in Turkmenistan knows that Nyyazow's cars are invulnerable. When I was central bank chairman, we bought two cars - a Mercedes and a jeep - in Stuttgart specially for the president. They were already armoured, but they were sent to the Czech Republic for additional armour to be fitted. An additional 200,000 dollars was paid for each car. Even a grenade launcher could not pierce those cars now.” Orazow also pointed to the fact that Nyyazow “managed to find culprits and ideological inspirers 30 minutes after he reached the [presidential] palace” - which he notes casts doubt on the report’s plausibility.

In any case, the aims of Orazow and the rest of the opposition movement do not include seeing Nyyazow dead. Orazow was quite emphatic about this, and when pushed by an interviewer, he ejaculated: “No! No! No! We need Nyyazow alive. The billions of dollars that have been stolen from Turkmenistan.... If he dies, who will return them to us?” Apart from that, the opposition movement is a touch more enlightened than the president, and says it refuses to resort to terror tactics. For his part, Nyyazow has been doing his best to deter further potential assailants. He has been putting on public concerts to keep the people happy, during which he has had performers dragged on stage to condemn the people behind his “assassination attempt”. They chanted: “O God, may those who made an attempt on the life of Serdar (Nyyazow) never see any joy, and may the curse of damnation hang over their heads forever. May those betrayers be damned for betrayal and never prosper, and may their daily meal turn into poison.” Rather them than me.

A Good Day To Go To The Sauna?
The besieged chief of Ukraine’s central bank, Volodymyr Stelmakh, has survived yet another attempt by Parliament on his governorship, as the session during which it was intended to have him voted out seemed to descend into a childish brawl. Parliament had to adjourn five times on Thursday as the opposition were causing mayhem by consistently sabotaging the electronic voting system, overturning computers with gay abandon and pulling as many plugs out as they could lay their hands on. They were said to be chanting “Down with Kuchma!” (Ukraine’s president) and there were slapstick scenes reminiscent of Monty Python sketches as grown men scrapped and taunted each other. But behind all the shenanigans and tomfoolery, the opposition had a serious point: the central bank will lose its credibility and political independence if its current governor is replaced. For his part Stelmakh merely says, “I am not eternal. According to the law, my term in office expires on 21 January 2005, and I must resign. That is, if everything goes the way it should, according to the law.” But he is a pragmatist at heart. When asked what he would do when Parliament was supposed to vote him out (he wasn’t to know of course how things would eventually turn out), he shrugged, “We'll see when we get to Thursday. And the Thursday following it, and all the other Thursdays. Thursday is a clean day, a good day to go to the sauna...” In fact, it seems like certain members of Parliament could have done with a nice cold shower.