NEWSMAKERS
Pundits
Pushing It?
William McDonough, president of the New York Fed and one of the most well-known
and influential figures in international finance, has announced that he
will retire in July. Those who consider themselves "in the know" are kicking
themselves for not predicting this, as it came as a complete surprise
- but it had to happen sooner or later. And why not sooner? As has been
flogged to death by the financial media (Newsmakers is not an exception,
nor does it particularly plan to stop being one now), we are on the point
of witnessing a raft of changes in most of the G10 central banks as a
new generation of leaders is poised to take over. The ECB (and possibly
the Banque de France if Trichet is let off the hook), the Bank of England,
the Bank of Japan and the Riksbank are all changing their governors this
year; and next year the term of Greenspan himself expires, as well as
that of the Belgian and Dutch central bank governors.
So it is a happy coincidence that McDonough has chosen to give up his
central banking career now, leaving a good year's breathing space before
Greenspan goes. His reaction to McDonough's retirement says it all: "I
will greatly miss Bill McDonough's counsel and advice. After a decade
of exemplary service to the Federal Reserve System, his retirement will
leave a pronounced void." Sounds like he really means it - bearing in
mind that in all his time on the Federal Open Market Committee (the Fed's
rate-setting committee), McDonough never cast a dissenting vote. Now 69,
he has experienced some pretty tense moments in his time, and has probably
had just about enough.
Possibly the most memorable was his instrumental role in seeing the Long
Term Capital Management affair through, when the Fed orchestrated the
rescue of the highly leveraged hedge fund whose collapse was in danger
of wreaking havoc in the financial system (yes, we know some complained
that the Fed's actions fuelled moral hazard, but most central bankers
view it as a job well done). He will also go down in history for his achievements
as chairman of the Basel Committee on Banking Supervision. Under Bill's
capable leadership the committee has completely revamped the Basel Capital
Accord, no mean feat given its legendary complexity (no one understands
it) and the multitude of different interests involved. He declines to
comment on what great deeds he will set his mind to now, although he has
said he will keep himself occupied on some of the not-for-profit boards
on which he serves, including the Council of Foreign Relations (where
he is vice-chairman), the Carnegie Corporation and the New York Philharmonic
Orchestra.
In the meantime, in order to make up for failing to foresee his departure,
the pundits are telling us who is to succeed McDonough. Impressively,
they already seem to know that it will be the US Treasury's Peter Fisher,
who previously ran open market and foreign exchange operations at the
New York Fed, although other names are being bandied about, including,
intriguingly, Fed vice-chairman Roger Ferguson (is he happy where he is?)
and Stanley Fischer, Anne Krueger's predecessor at the IMF, who only very
recently became president of Citigroup where one imagines he is earning
a bob or two... These "wannabe insiders" (as one real insider put it)
can suggest names until they are blue in the face, but Newsmakers suggests
that the field is still very much open.
Knight
Moves
To illustrate how impossible it often is to be so sure whom these high-level
positions go to, who on earth was saying that Malcolm Knight, currently
senior deputy governor at the Bank of Canada, was going to take Andrew
Crockett's job at the BIS? No one. Newsmakers can now smugly congratulate
itself on abstaining from backing a favourite in the last issue. But why
did it have to be a Canadian, grazed Europeans are wondering? If a non-European
was going to head what was for many decades considered Europe's counterweight
to the US-dominated IMF (Knight is the first non-European to head the
BIS in its 73 years of existence), could it not have been someone from
South America at least, such as the favoured Fraga? John Crow, a former
governor of the Bank of Canada, goes some way to explaining this in his
recent book Making Money when he says that of all the international organisations
and committees, at the BIS Canada felt "much more on our own ground".
Knight will leave for the BIS at the end of March, having joined the central
bank in 1999 after a 24-year slog at the IMF, where he worked his way
up to deputy director in 1993. Bank of Canada governor David Dodge expressed
appropriate regret for losing his colleague to the BIS: "The Bank of Canada
is very sorry to lose MrKnight, whose excellent leadership as senior deputy
governor has been important to the bank's success over the past several
years. However, the bank is very proud that Malcolm's abilities and expertise
have been recognized by the international community."
Dodge has equally good reason to be worried about the imminent departure of another senior figure, Charles Freedman. He has announced that he will be off in September, after more than 30 years of service to the bank, the last 15 as a deputy governor.
Perhaps Freedman's greatest contribution was his pivotal role in the introduction of inflation targeting in 1991, particularly as he had so little to go on, Canada being only the second country to introduce this after New Zealand. He was the man behind the research, and, he told Newsmakers, is "pleased to note that our framework was remarkably similar to the approach suggested by the research done several years later by Lars Svensson, which emphasised the importance of 'flexible targeting' and the need to bring inflation back to the target gradually, if it deviates from the target as a result of a shock." He went on to stress how valuable the ability to conduct research was to him, which he counts as "among the highlights of my career". As a former academic, he said, "I cannot over-emphasise the importance to me of being able to continue to do research throughout my career at the bank."
Freedman tells Newsmakers that he plans to return to academia and perhaps take up some invitations he has received from a number of central banks and international organizations to do research. "And possibly, if my energy level suffices, I will write a book on the theory and practice of central banking" - one to look out for. In fact, there will also be a festschrift in his honour involving such luminaries as Charles Goodhart, Lars Svensson, Don Kohn and Larry Meyer. In his spare time, "there are also a lot of novels waiting that I have not had time to read", and, "perhaps most important", he intends to spend more time with his three grandchildren.
Standoff
For Hamalainen Seat
Speculation is mounting as to who will succeed Sirkka Hamalainen when
her term on the ECB's executive board expires at the end of May. As the
countries concerned are acutely aware, Austria, Belgium, France, Ireland,
Luxembourg and Portugal are the countries in the euro area not to have
a representative on the ECB board. So far, rumblings in the media would
tend to suggest that the keenest of those countries to snap up the soon-to-be-available
seat are Austria, Belgium and Ireland (France has its hopes set higher,
on the governor's spot). The Austrians have put their money on Gertrud
Tumpel-Gugerell, the deputy governor of their central bank who, people
say, has been deliberately "groomed" for the candidacy. The Irish are
also believed to be interested as last year finance minister Charlie McCreevy
aired his feeling that all euro zone countries should have a go on the
board at some point.
But in Belgium there seems to be something of a standoff between Paul
De Grauwe, the well-known economist and ECB-watcher, and Marcia De Wachter,
the central bank's charming deputy governor. The latter has it in her
favour that the ECB is rumoured to want to replace Hamalainen with another
woman, as she is still the only woman on the board. But De Grauwe seems
to have volunteered himself, obdurately persisting in his aim to get on
the board after he was given the brush off in his bid for Christian Noyer's
place, which went to Greek Lucas Papademos. De Grauwe, who has become
known for his criticisms of the ECB for failing to promote growth (he
is no fan of the notorious Stability and Growth pact which the ECB continues
to support) and not cutting interests rates quickly enough, insists that
he is Belgium's candidate: "As far as I am concerned, I am." He has this
on the most reliable of sources, that is, "people who should know".
But so far at least, the government has not shown boundless enthusiasm
to sanction his claims. Didier Reynders, Belgium's finance minister (who
has in the past been rumoured to be interested in assuming no less than
the presidency itself should the Trichet plan fall through; he also refused
to endorse an otherwise unanimous vote for Papademos's appointment when
De Grauwe was not chosen) will make "no official comment... for the time
being." May the best man - or woman - win.
Besides McDonough's departure, there has been further excitement at the Fed, albeit of a less momentous nature. First of all, the Fed was involved in an anthrax scare. Washington was on red alert when it was discovered that some malcontent was trying to infiltrate Greenspan's in-tray with an anthrax-contaminated letter - but, happily, it turned out to be a false alarm. A rather more real threat came in the shape of a particularly canny cat burglar, who ingeniously managed to worm his way into the holy of central banking holies, Greenspan's own home - and in broad daylight. This plucky larcenist managed to make off with some of Mrs Greenspsan's (a.k.a. Andrea Mitchell, NBC's foreign affairs correspondent) most prized jewellery, much to her sorrow. The trespasser pilfered some items of "sentimental value, including gifts from my husband." But, as Mitchell told The Washington Post, "The bizarre thing is that people were in the house all morning. Someone was clearly casing the place."
Still, that can't be half as unsettling as the fact that Newsmakers has in its possession a copy of the autograph of none other than Fed honcho himself, blithely given away at a chance meeting in a lift together with his wife with one of Central Banking journal's fearless correspondents in the US, who must remain nameless. As related by the said correspondent, who had a copy of Central Banking journal with him at the time, the dialogue went as follows. Correspondent: "Mr Chairman, can I get you to sign this Central Banking journal?" Mitchell: "That's very appropriate." [Opens to page 69.] "Were you in Ulaanbaatar? I was in Mongolia a long time ago." Correspondent: "Yes, I was there two months ago." Greenspan: "I'm not sure I should be signing this page." Correspondent: "I wrote the article - see, that's my photograph." Mitchell: "You can sign it, Al, he wrote it - see?" [Signs page 69.] Correspondent: "Thank you Mr Chairman, thank you Ms Mitchell." He then scarpered before the venerable chairman thought better of it. All in a day's work for the mighty, no doubt.
His opposite number across the Atlantic has been having a pretty trying time recently too. Again, a wife was involved. But Gretta Duisenberg, as we all know by now, does not quite have the same gift for diplomacy as Andrea Mitchell. Following Wim's pledge of support for his wife, whose own controversial support of the Palestinians has provoked rampant disapproval from some camps, her most recent gaffe came when she blurted out, "The Holocaust excepted, the Israeli occupation of the Palestinian territories is worse than the Nazi occupation of the Netherlands." This hasn't gone down too well, and Gretta has in fact since apologised for this impolitic remark. But one outraged leading Dutch parliamentarian has demanded that the ECB president resign "immediately" in light of his support for his wife. While Newsmakers suspects this probably won't happen, protesters are now starting to take more direct action, and most recently 80 German Jews staged a protest outside the ECB HQ in Frankfurt. Still, not long to go now. Let's just hope Wim can stick it out until July - provided they have decided who is to replace him by then, that is.
The central bank in Venezuela is desperately upset with the Financial Times for publishing a story in December that it claimed was completely untrue. According to the FT article, the bank had been forced to recirculate old 50,000 bolivar notes that had been due for incineration because of a serious shortage of notes. But the FT then went on to allege that, firstly, the governor of the central bank, Diego Castellanos, dabbled in voodoo magic (or rather in a local variant of voodoo known as Santerismo), and that, secondly, this had prompted him to order in 2000 that these notes be destroyed because he feared they were cursed. Newsmakers' investigations on the matter yielded no satisfactory conclusion. The FT correspondent in question insists that as far as he is concerned this is true, claiming to have reliable sources. The central bank for its part denies it outright, and professes to being rather disappointed with the FT. Somewhere along the line one wonders whether the facts didn't get twisted...
To follow up on the almost implausible events that have been taking place in Turkmenistan, the lunatic despot who runs the place intends to lock up former central bank governor Hudayberdi Orazov for life after his alleged - and vigorously denied - role in a recent assassination attempt on his person. The trial, which took place in his absence in December, was described by Amnesty International as "grossly unfair". Luckily for Orazov, he is in hiding in Russia, but President Niyazov has vowed to root him out along with two other guilty parties also sitting tight in Russia: "God willing, we will detain them." He has been on the telephone with the Russian president to persuade him to lend a hand in his search, and it seems he succeeded. Amnesty International says Orazov is "at great risk of torture" if he is deported to Turkmenistan.
Newsmakers was delighted to attend Ian Plenderleith's leaving party, prior to his departure from the City to take up the new challenge as a deputy governor of the South African Reserve Bank. It was a very special City occasion, with the top brass of the Bank out in force, as well as friends both personal and business from far and wide. The financial markets were well represented, not forgetting the gold market. In addition to the governor himself, governor designate Mervyn King popped in to wish Ian every good luck in his new venture. Plenderleith himself is plainly overjoyed to have this great adventure and opportunity open up for him after his retirement from the Bank. And to be able to combine his passions for central banking and cricket under the sunny skies of Pretoria, well! Who would not rather be in South Africa than London in February?
A Cure-All Or A Bad Call?
Sovereign default has provided policymakers with a few headaches over the last few months, but is Anne Krueger's back-pedalling project, with the catchy acronym "SDRM", a panacea or placebo? Mike Mussa, one-time IMF supremo, was far from optimistic in his diagnosis. On whether SDRM should be used to solve emerging market crises, he opined that it was like "giving an aspirin to someone who has cancer". With friends like these...
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