NEWSMAKERS

• Massad Goes
• Iraqi Looters Try Their Luck
• Central Bank "Does Not Exist"
• Return To The Trouble? No Thanks
• Trichet's Reprieve
• Central Banker's Remedy For SARS
• Fighting A Losing Battle?
• In Sickness
• Putting The Boot In

Massad Goes
Carlos Massad, the well-known economist who has resigned as president of the Central Bank of Chile, had come under heavy fire from both the government and the media, but that is not what made him throw in the towel. As he tells Newsmakers, "My resignation was 100% voluntary. It was a personal decision, which only my wife knew of before I presented my letter of resignation to President Lagos."

He admits that he came under "intensive" pressure from political leaders to resign, after allegations that one of his staff had been sending market-sensitive information from his computer to a local financial institution. But Massad also says that these political leaders were "very careful" to support central bank independence. As he explains, there were dark forces at work: "This pressure was not the basis for my resignation. Active public discussion in the press put the credibility of the central bank at risk, and I could not accept that risk. So, I waited until appropriate measures to strengthen information security were put in place at the bank, and then resigned."

Massad insists that the credibility of the central bank has remained intact, citing the fact that inflation expectations remain in line with the central bank's target - "I feel proud of this: the institution is strong enough to withstand pressures." And it was certainly put under great strain by the media, which bloodthirstily dubbed the episode as "possibly the greatest financial scandal in recent Chilean history".

Massad pins much of the blame on the press: "The way in which domestic press handled the discussion, exacerbating morbidity and rumours rather than information, could have damaged the credibility of the central bank if maintained for a long period." As a result, the only solution was for him to resign.

Likening the episode to the terrorist attack on the Twin Towers where the security measures which had been in place in US airports subsequently proved to be inadequate, Massad says that there is little that can be done to ensure that such an episode will not happen again: "It is impossible to be absolutely sure that there will be no more leakages, but we can reduce the probability of leakages."

There are implications for the supervision of the financial sector. The bank which allegedly received emails from Massad's office was subsequently alleged to have been involved in all manner of shady dealings. Massad says: "This raises questions about the quality of supervision of the relevant supervisory agency. I believe that consolidated supervision is a must in the Chilean economy."

Carlos Massad, who has had a distinguished career as an inernational economist and central banker, and is well known in UN circles, intends to take a long holiday. Then he will survey his options: "My professional training and experience, as well as my personal preferences, are clearly linked to macroeconomic analysis and policies."

Iraqi Looters Try Their Luck
Developments have taken their toll on the Iraqi central bank, as Saddam's regime disintegrates and any semblance of civil obedience disappears. Looters and freebooters seem to be laying their hands on whatever's going. The more ambitious ones are hoping to make good by spoliating the central bank's coffers, and recent reports on British television have shown footage of chancers inside its headquarters in Baghdad furiously hammering away at the vaults in the hope of winning their fortune. The tools they were using looked flimsy, however, and no reports of a successful break-in have yet been made. The footage also showed a reporter wandering freely around deserted offices that appeared to have been fairly diligently ransacked, with upturned desks and papers littered all over.

In Mosul however, in northern Iraq, there has been more success. Newsmakers hears that Abu Dhabi TV has been broadcasting images of gleeful pillagers scurrying out of the central bank branch there with armfuls of banknotes having prized open the safe, and some were to be seen scrapping with others who had presumptuously attempted to steal their stolen money. AP quoted one bystander as saying, "What is happening shouldn't happen. This is barbaric. This is not Saddam's money. This is the nation's and the people's money." Elsewhere, reports detailed sightings of Iraqis pinching all manner of furnishings from the central bank's branch in Basra, and feverishly piling them up onto donkey-drawn carts or clapped out cars to make their getaway.

Meanwhile, the "Saddam dinar" (so called as it carries a picture of the man) has tumbled to something like 2,800 dinars to the dollar, although one dinar is "officially" worth over $3... This will doubtless make the Kurds in the north very happy indeed, as they use what is known as the "Swiss dinar" which has not been reprinted since 1991. As might be imagined, notes are now in rather short supply, and this problem has been exacerbated by the fact that the currency has strengthened from more than 10 to the dollar last month to around 6 at last count, with hopes that it might rise as high as 2 to the dollar - causing those who are lucky enough to have any of them to stash them away.

All of this only serves as a reminder to what a job it will be to rebuild Iraq, and specifically the central bank, when hostilities cease. Hardly an enviable task. For an idea of what the central bank looked like before the war, have a look here: http://archnet.org/library/images/one-image.tcl?image_id=25086

Return To The Trouble? No Thanks
The chairman of the National Bank of Kazakhstan (NBK), Grigori Marchenko, is outraged at the prospect of adopting the Russian rouble as the currency for the planned economic union between Belarus, Kazakhstan, Russia and Ukraine. Marchenko would resign: "If the presidents and the parliaments of our countries were to adopt such a political decision - damn sovereignty, let the Russian rouble be [the common currency], let it be so. But I personally would not consider it to be the right one. I personally will not deal with this."

Marchenko tells Newsmakers that he favours a new international central bank rather than ceding sovereignty to the Central Bank of Russia (CBR). Newsmakers asked Marchenko to what extent such an arrangement would merely represent a return to the situation in 1991 before Kazakhstan gained independence and set up its own national currency, the tenge.

He joked, "Well, as you well know, history is always repeating itself - there is nothing new under the sun." But, more seriously, he added: "What is important for us is to protect our country's interests, and not to be taken advantage of, which was sometimes the case under the Soviet Union arrangements. We have all learned some hard lessons since then, and this new arrangement could be a better one for all the parties involved." He wistfully mused, "We will be the happy members of a much larger organisation."

But, plainly, returning to the rouble is not what he had in mind. As Marchenko said to the Russian Izvestiya newspaper, "The point is that when we are offered to make the Russian rouble our single currency, that actually means delegating a part of the sovereignty of the states to Russia. In exchange for what? For this sole reason such a scenario is not an acceptable one." Marchenko lists a number of other reasons why. For starters, monetary policy would be in the hands of the CBR, while the NBK "would not be able to do anything, since they would have no levers to influence the Russian institution." Kazakhstan would presumably have no say over the appointment process of the CBR. Furthermore, Marchenko asks, "What if, unexpectedly, a new chairman [of the CBR] carries out a fourfold depreciation, as was the case in 1998, to help exporters?"

Right now, this is all still up in the air. But obviously returning to the rouble would not be a satisfactory arrangement for Kazakhstan, and consequently Marchenko will quite sensibly have nothing to do with it.