11 August 2003

NEWSMAKERS

 

Central Bankers Abroad
It is that time of year when many central bankers jet off on holiday. But where do they go, and what do they get up to? Newsmakers has done a bit of asking around - and got some varied responses.

Of the more offbeat pursuits, Don Brash, former governor of New Zealand's central bank, says that during his 14 years as governor, he - rather appropriately - spent at least two weeks of his annual leave each year pruning male vines on his kiwifruit orchard. This turned out to be a particularly rewarding exercise: "I found that deciding which bits to cut off was sufficiently demanding mentally to take my mind completely off where the Official Cash Rate should be!"

His successor, Alan Bollard, is no less adventurous, most recently trotting off to Syria, Jordan and Egypt to see something of the Arab world: "It was a great time to travel - I think we were the only western tourists in Syria." But this Christmas he has plans to stay in his forest outside Wellington where he intends to "prune trees, chop wood, swim or raft down the ice cold mountain river, have lazy barbecues with great local produce, pick blackberries and mushrooms, listen to complaints from the local farmers, and read that very long book about Paul Volcker and the Fed that I keep putting off."

Gerry Corrigan, Volcker's former colleague and protégée and the former president of the New York Fed (now slumming it at Goldman Sachs along with the likes of Robert Hormats), was known to go out camping in the wilds for weeks on end.

One current Fed official is also a fan of the great outdoors, having just returned from a vigorous ten-day march around Mont Blanc, and has in the past been known to undertake some of the more precipitous Andean trails. As for his colleagues, he disappointedly sighed, they tend to go for the more "standard issue" type of holiday, but he is doing his best to raise the standard.

Alexandre Lamfalussy, former head of the BIS and the European Monetary Institute, forerunner of the ECB, was in his time particularly intrepid, with a liking for hiking in the African hinterland. Andrew Crockett, Lamfalussy's successor at the BIS, and now off to JP Morgan, apparently found it harder to sever all ties from his working life, making sure his mobile telephone or email was always within easy reach when on his regular trips to the French Antilles where he indulges his passion for golf. [In fact, Newsmakers actually spotted him hurrying off from the most recent BIS annual meetings wearing a dapper straw hat with golf bag slung over shoulder, in order to take on some of the braver central bank governors attending.]

As for other Europeans, Eddie George always enjoys a gentle cruise round the Solent (off the Isle of White), while the bronzed Karl Otto Pohl, former head of the Bundesbank, used to cut a dashing figure on the ski slopes. Jean-Claude Trichet is refreshing himself with a traditional French holiday, in France but well away from the bright lights of Paris. With eight years to go in Frankfurt, who can blame him?

In Finland, central bankers like to retreat to the countryside to stay in the bank's guest house in Lapland, where they can go for a spot of skiing (energetic, cross-country, of course) in the winter or hiking in the summer (when the mosquitoes allow it). One Icelandic central banker complained that on his recent holiday the weather was actually too hot to go salmon fishing, bringing home just one measly trout. (A colleague however found the same hot weather perfect for some hearty walking in the highlands.) But Scandinavians need to come home for the crayfish season when they can gorge themselves on seafood and aquavit.

Many central bankers love the sea; all those nautical metaphors about "sailing close to the wind" and "central bankers in uncharted waters" are not without substance. One "passionate camper" has a fondness for the Adriatic ("the sight of it, the smell and the sound, the tremendous sunsets...") and has been snatching opportunities for a few days off all summer. There are even quite convenient conferences held from time to time in nice places like Dubrovnik (call Jacob Frenkel, former governor of the Bank of Israel, for more details).

Meanwhile, in a number of South American countries the beach, particularly perhaps in Brazil, is the place to be seen - "whenever they find the time and the money", that is... And then there are always those very special islands off Venezuela…

For a cold shower, in conclusion, it has to be said that a disturbing number of central bankers actually expressed surprise at the existence of such a thing as a holiday, and even if they knew about such a thing, view it as a fairly alien concept.

One governor said, "On the rare occasion that I do go on holiday, I usually spend it with the kids shopping, going to the movies or visiting fun parks." One central banker was fairly sure his governor never goes on holiday at all, while another said that if he did, it was never for long. Yet another didn't know so much about his governor's holidaying antics, but could reveal that he was a dedicated weight lifter (this contrasts with the informant's own personal preference for strumming on the guitar to ease his worries). As one all-too-knowingly put it, "central bankers never rest".

Greenspan Holds His Own
In his recent testimony to Congress, Alan Greenspan has "reached a new low" according to a certain Congressman Sanders. By apparently suggesting that manufacturing doesn't matter, Greenspan had "insulted tens of millions of American workers".

This Sanders has taken it into his head that Greenspan is "way out of touch with the needs of the middle class and working families of our country", and that instead the Fed serves the needs of evil and bloated corporations. Touchingly, Sanders is still confident that Greenspan is an "honest" person; but, as he challenged the chairman,"you just don't know what's going on in the real world".

To remedy this deplorable state of affairs, Sanders suggested that Greenspan meet some "real" people, generously offering to introduce him to some himself, since, "the millionaires and billionaires are the exception to the rule".

But when Sanders asked the Fed chairman whether he gave "one whit of concern" for America's middle and working classes, Greenspan, provoked, held his own, despite rude interjections (such as "wrong mister") and outraged splutters from Sanders.

Greenspan coolly observed that America had the highest standard of living in the world for a country of its size: "The incomes, the purchasing power of our employees, our workers, our people are, by far, more important than what it is we produce... The major focus of monetary policy is to create an environment in this country which enables capital investment and innovation to advance. We are at the cutting edge of technologies in the world... People flock to the United States... And why? Because they think this is a wonderful country to come to."

"That is an incredible answer," was the best Sanders could muster in response.

Finance Minister Becomes Governor In Peru
How will Javier Silva measure up as the new governor of Peru's central bank? Previously the country's finance minister, Silva stepped into the breach to replace Richard Webb after the latter's resignation on account of unworkable disagreements between himself and the board.

Judging by his progress to date, Silva might well fare better on that front. Silva has had some training in economics, and has been involved in various business ventures (reportedly with decidedly mixed success). However, our sources tell us that he has made good use of his varied experience in senior government positions - which included a stint as an international bureaucrat for the Andean Common Market secretariat. So he may be able to handle his board better than Webb. "He is a smart guy", said one acquaintance.

True, he is said to have only a nodding acquaintance with the complexities of modern finance. But then again, central bank governors do not necessarily have to be financial whiz-kids; it takes a combination of skills to run a central bank successfully.

Meltzer Magic
Allan Meltzer and the dear old Bretton Woods twins haven't always been on the best of terms. As he told Central Banking journal barely a year and a half a go: the world bank's inefficiencies were a "scandal"; in many of its activities it "contributes little"; the IMF threw money at Argentina and the much-hyped SDRM (hey - remember that?) was "one of those ideas that will never happen". Meltzer certainly doesn't shy away from targets. Governments, central banks, academics they have all been felled by what Karl Brunner described as his machine-gunner style of argument.

With this sort of form Newsmakers was startled by a glowing interview in Finance and Development (or F&D as it has stylishly re-branded itself), the IMF's venerable quarterly organ. Things seemed to be on the mend between Meltzer and the Fund. The Fund, Meltzer says, took his commission seriously and tried to implement some of things it proposed. The Fund seems to have accepted with great alacrity the role of setting standards with countries left to implement them. The Fund's role should be to help victims not the culprit - ie, lend to those threatened by contagion who maintain specific policies.

But he has not softened his stance on the Bank. There's an "enormous difference" between the response from the Fund and Bank Meltzer tells F&D. The World Bank's "record of accomplishment in the poorest countries is very poor." Oh dear. With the rows over reciprocal canteen rights still fresh in everyone's minds, Newsmakers hopes that this won't be start of more internecine warfare.

At present Professor Meltzer is of course working on his gargantuan history (Volume II) of the Fed, a story which itself bids to become a piece of the Fed's history. Meltzer certainly seems to be part of the furniture. He has been around so long he is starting to come across himself in his own research.

Macfarlane Soldiers On
Ian Macfarlane, the governor of the Reserve Bank of Australia, is buckling down for another term - but not a full one. At the age of 57, it seems that the prospect of another whole seven-year term would have been a bit much, so he put a bid in for a shortened second term of three years, which was accepted by Australia's Treasurer Peter Costello. It would have been odd if he hadn't accepted: as a source put it to Newsmakers, Macfarlane's reappointment was a "no-brainer" for Costello. After all, "He's been doing a good job, the economy has done well - why even consider not reappointing?" Fair point.

In any case, Macfarlane will be able to retire at the round age of 60 - in September 2006 - having spent a full decade as governor (and it is rumoured that Macfarlane has said that ten years in the top job would be enough for anyone), and another 17 years at the bank before that. He had previously said, when probed on the subject, "If you are young enough to do another [term] you will think about doing another one." Although he was thinking about doing another term, maybe he wasn't sure if he was young enough. In the end he managed to wangle a compromise that keeps everyone happy. After all, he has presided over the central bank during a particularly prosperous period, and politicians have proved to be more than happy for this to be prolonged.

The only other Australian governor to make it into a second term was H.C. "Nugget" Coombs back in the sixties. Macfarlane is known by some as Big Mac, although apparently not to his face. He is greatly liked by his colleagues, who are said to be as delighted with his reappointment as he is. Macfarlane's unassuming character endears himself to others: he is rumoured to have once described himself as "a sort of banker" when asked his occupation by a Sydney golf club, according to Reuters. Although he partakes in the BIS annual golfing tournament - an informal and soothing affair which takes place after the AGM - he has never won. Macfarlane says Asian central bankers always win it. Raised in Melbourne, he spent six years at the OECD in Paris before moving straight to the central bank. He is married with a son and a daughter.
BIS Increases Transparency
Something which has largely escaped people's notice amid the flurry of recent changes at the BIS is that it has now declared the salaries of its senior management. This is consistent with its more general drive for greater transparency, since, as the new general manager Malcolm Knight told Newsmakers, "At the BIS we encourage greater transparency in the financial system, and we have to live by what we preach. That's why we recently acted to make our own financial statements much more transparent." Malcolm Knight himself is paid 617,050 Swiss francs ($456,567) while his deputy gets 566,500 Swiss francs ($419,164) and heads of department get 526,070 Swiss francs ($389,249). This compares with Alan Greenspan who only gets around $170,000 (actually much less than other regional Fed governors, some of whom get almost double that) but more in line with, say, Mervyn King at the Bank of England who gets £256,893 ($417,271).
New Serbian Governor Asserts Independence
Did the Serbian government give Mladjan Dinkic the boot because of his questionable running of the central bank? If so, his successor won't last long. Energy minister Kori Udovicki who has been chosen to take his place told the Financial Times, "I will continue, absolutely, with just as strict a monetary policy and just as strict, if not stricter, banking supervision. I expect continuity in terms of firmness, no doubt about it."

But, although she has been drawn in from the party ranks, she is adamant that she will not stand for any attempts at bullying the central bank into becoming the government's plaything: "People are waiting to see whether I really succumb to pressure from the government. I do not blame people for wondering, but I know that if anybody put me here for that reason they made a big mistake." She rubbished the notion that the government would have any success in making the central bank to manage reserves in any other way than normal: "Reserves will be managed as reserves, and there is no instrument for the government to try to put pressure on me other than, perhaps, something psychological."

Despite protestations by the senior central bankers that made a sharp exit from the central bank immediately prior to her arrival that the changes being made to the central bank would damage its independence, Udovicki predicts the opposite, albeit for different reasons: "I think there is going to be a boost to the independence and strength of Serbia's central bank in that I plan to have absolutely no political role, no political interest."

This would contrast with Dinkic who was and is intimately involved with the G17 plus party as a founder, who explained, "I entered politics out of necessity, recognising that we cannot transform the economy until we have political backing." He cited his attempt to implement the Yugoslav National Bank Law (rather than the existing one that resulted in his removal), which was dismissed for political reasons.

However, Udovicki intends to "extend and develop" Dinkic's work. As an ex-IMF staffer (she was chief economist for Yugoslavia from 1993 to 2001), she is a believer in the ways of the markets, and to that extent she differs from Dinkic who she labels "interventionist", calling herself "too naive" to have been able to do the job back in October 2000. But, "I am glad to inherit the institution he has created. But my goal - and I think I am more committed to this than he would have been - is to evolve the system with market-based instruments."
 
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