News This Issue:

• Mboweni Goes Top Brass
• Who Next To Head Bosnian CB?
• Thiessen Fights Corporate Fraud
• Briefcase Fraud
• Crow Suggests Thiessen Might Never Have Been
• Bonello Provokes Controversy
• Cani Safe For Now
• Ukraine CB Under Fire
• Repse Wins
• Birds Of A Feather
• FED Accepts Blame For The Great Depression

Mboweni Goes Top Brass
The ignorance of civilians as to what central bankers get up to and why can often have quite detrimental consequences. To combat this problem, Tito Mboweni, the governor of the South African Reserve Bank, has taken to placing adverts in the newspapers in the hope of educating the people. He took out a two-page spread in a national paper explaining to the public why inflation targeting matters, following the recent upwards readjustment of the target band. And Tito can now lay his hands on guns as well as butter in defence of his position. He has been made an honorary colonel of the 1st South African Tank Regiment. Newsmakers congratulates him. Rapacious speculators will think twice before messing with the South African rand.

But Mboweni’s interests can be said to be truly varied. Not only a central banker, and now a colonel, he is also what he describes as an “avid flyfisherman”. He recently gave a speech at the launch of the fourth edition of the “Nedbank Guide to Flyfishing in Southern Africa”; a book that he said would “occupy a prime place on my bookshelf”. In his speech he praised the publication, not least for bringing his countrymen together - flyfishermen to a man. “By bringing in many black people into this sport, we will be playing our little role in creating non-racialism in South Africa in the true spirit of the call: South Africa belongs to all who live in it, black and white. Thus no sport or recreational activity must be seen to be in any way black or white, but must be truly South African - black, white and women. So let us go out and spread the gospel.”
http://www.reservebank.co.za/internet/publication.nsf/WCEV/8C64F20A7648597B42256C68004D52DE/?opendocument

Who Next To Head Bosnian CB?
What is to happen when the term of Peter Nicholl, current head of the Central Bank of Bosnia and Herzegovina, expires? According to the law governing the central bank, which was laid down five years ago when the bank began operations, the governor for the first six years must be a foreigner; and after that, a Bosnian citizen. Nicholl has recently said that there should be no problem appointing a successor, and suggested that any one of the vice-governors would fit the bill: “I believe that Bosnia-Herzegovina has potential candidates with good skills for the post of the CB BiH governor and among them are the three current vice-governors.”

However, each of the central bank’s vice-governors represents one of the country’s three population groups: Kemal Kozaric for the Bosniaks, Ljubisa Vladisic for the Serbs and Dragan Kovacevic for the Croats. Should one of these (or for that matter any other Bosnian) be appointed in favour of the others, it is worried that this will rekindle some of the problems that led to the appointment of Nicholl, as a foreigner, in the first place. Though the current law is very clear, Newsmakers hears that there is discussion afoot in Bosnia as to whether the political situation has changed sufficiently to enable Bosnian politicians to agree on who should be the next governor. Two alternative solutions have been put forward: one is that the law should be amended to keep a foreign governor for a longer period, perhaps another two years; others have made the more radical suggestion that Nicholl should be made a Bosnian citizen. This should be a situation worth observing come next August.

Thiessen Fights Corporate Fraud
Following in the footsteps of Paul Volcker who has been battling gallantly against corporate fraud, Gordon Thiessen has been appointed chairman of the Canadian Public Accountability Board. One of his tasks will be to round up a group of trusty inspectors whose job it will be to certify that auditors are doing their own job properly. Thiessen, who preceded David Dodge as governor of the Bank of Canada from 1994 to 2001, explained how they managed to persuade him to take this job on: “Ensuring that people have confidence in financial statements because the quality of the audit being done is first rate is terribly important.” The Ontario Securities Commission thinks oversight of Canadian accountants could do with some improvement and that by appointing the likes of Thiessen it will in this way reassure investors and avoid any repeats of the Enron fiasco. Also like Volcker, and indeed ex-central bank governors of any other G7 country, Thiessen has his finger in a number of pies: he sits on the boards of the Institute for Research on Public Policy, Manulife Financial Corp and Ipsco Inc, and is also chairman of the University of Saskatchewan's board of governors.

Briefcase Fraud
Although not related to Canada, Newsmakers discovered an amusing incident of the kind Thiessen is likely to have to get used to. Raymond Williams, the founder and CEO of HIH insurance group, which is lamentably no more, under cross-examination by Wayne Martin, counsel of the Royal Commission, told the court in Australia a neat little story about his briefcase:

Martin: “Could you tell us please if, on your frequent first-class trips to London, you booked the seat next to you for your briefcase?” Williams: “I don't recall specifically. But that may have been the case, on some occasions.” Martin: “That your briefcase was also travelling first class?” Williams: “That may have been the case.” Martin: “Did you express the view to Qantas that this briefcase should be eligible for frequent-flyer points?” Williams: “I can't recall that.” Martin: “And were you subsequently informed that said briefcase would not be eligible for such points on the grounds that it was not, in fact, a person?” Williams: “That may have been the airline's position on that issue.”Martin: “Was that briefcase, from that point on, booked under the name of Casey Williams?” Williams: “Yes, Casey Reginald Williams, AM.”

Crow Suggests Thiessen Might Never Have Been
Meanwhile, Thiessen’s predecessor, John Crow, has recently released a book that reveals how Thiessen might never have been governor at all. He says that a dustup with then finance minister Paul Martin over inflation-targeting strategy meant that he was blocked from having a second term as governor. In his book, wryly titled “Making Money”, Crow ridicules the brittle understanding of economics of the Liberal government who won the elections just as his term was up for renewal. Of their notion that they could achieve economic growth and fiscal responsibility together with low interest rates and low inflation, Crow scoffed, “Was this a joke? I don't think that anyone with a decent understanding of monetary policy matters could have made this up if they tried.” Crow developed a stoic resignation in order to cope with their confusion over economic affairs: “Rumours swirled and the media became increasingly thrilled. I stayed calm, having long since taken the view that it would be best to sit back, observe the show, and see what was pushed on stage before responding.” Eventually, he decided that he would only accept reappointment if they accepted his stand on inflation targeting; Martin stood firm in his wish for the target band to be upwardly revised from 0-2% to 1-3%. When Crow offered a compromise of 0.5-2.5%, the game was up: “This was rejected out of hand. So we agreed to disagree, and my term was effectively over.”

Cani Safe For Now
As for the governor in Albania, Shkelqim Cani, whose tenure looked shaky due to his supposed responsibility for the affair in which his deputy Dhame Pite was sacked for his handling of a banknote emission tender causing the loss of $600,000 to the state budget, things are looking up. At a plenary session in parliament on November 6 it was argued by opposition members that the nature of Cani’s position made him inherently responsible for Pite’s failings. However all the criticism of Cani originated from opposition parties, and luckily for Cani the governing Socialist Party (to which Cani in fact belongs), which has a majority in parliament, decided that the motions against him were unconstitutional. As a result, when it came to a vote as to whether he should remain in office or not, 66 voted that he should stay against 43 that he should go. However it was ruled that investigations should still continue - there are currently 12 files in progress - the outcome of which remains to be seen. For the moment Cani is safe - but has only won the battle, not necessarily the war.

Ukraine CB Under Fire
The National Bank of Ukraine has come under fierce attack from the government, which is allegedly demanding that the governor, Volodymyr Stelmakh, be dismissed. Showing signs of cavernous disillusionment with the central bank’s performance, Ukraine’s prime minister, Anatoliy Kinakh, has reportedly petitioned the president to ditch Stelmakh, who as governor is judged to be responsible for the bank’s failings. The prime grievance is the bank’s apparently “poor cooperation” with the government. Kinakh is said to have sent a report to the president, Leonid Kuchma, complaining that the central bank suffers from a “poor ability to develop and effectively implement the monetary, credit and foreign exchange policy to achieve the long-term goals of stable development.” Kinakh listed the weakness of the banking system and a lack of radical changes in monetary policy as important failings. The bank is also accused of being difficult by refusing to sign a memorandum on its dealings with commercial banks, and Stelmakh himself apparently failed to show up at key meetings with the government.

I asked the bank to what extent this was true, and its version of events was rather different. For one thing, “the rumours about dismissal are not officially confirmed yet”. In fact, contrary to what the report suggests, although relationships with the government are clearly not exactly healthy, they have certainly been worse: “Since the council of the National Bank come in force two years ago much progress has been achieved in relations between the government and the central bank as far as financing of budget deficit is concerned.” It is worth observing that Kinach's government is already the eleventh in Ukraine since its independence in 1991, while Stelmach is only the fourth governor of the central bank since then.

As for the banking system, the key problem is linked to “undeveloped financial intermediation”, as banking credits become practically the only interest-bearing asset. High real interest rates are severely criticised, but the bank attributes this to “excessive reporting procedures, negative exchange rate expectations, moral hazard and lack of transparency”, not inadequate monetary policy. The lack of activity in the treasury bill market since the 1998 collapse is not ideal, but again, “these are the problems of the whole financial sector, which is extremely undeveloped.” The bank explained that the fact that top businessmen are appointed to key positions in government is a “dangerous problem”, causing a very damaging conflict of interest between the public and private sector.

The bank defends its performance, saying that since Stelmakh has been governor, monetary policy has been effective, with inflation at historically low levels and deposits of the banking sector growing. Since January 2000 the exchange rate of the hryvna to the dollar has been stable at 5.4 UAH/USD. The bank does admit to there being a lack of clarity in monetary policy strategy, but this can be explained by a quite understandable “conservativeness against innovative approaches since the bad speculation experience that occurred in the forex market in 1997-1998.” One wonders, then, if Kinakh’s eagerness to see Stelmakh dismissed does not betray an ulterior motive…