NEWSMAKERS
A Big Change
At The Bank Of Japan
The changing of the guard at the Bank of Japan may make for a bigger shift
in policy than most commentators are saying. People who know him well
say that Toshihiko Fukui, the new governor, quite apart from being a delightful
person, may be more flexible on monetary policy issues than people are
saying. Ten years younger than his predecessor, Masaru Hayami, at 67,
he may less opposed to the job of fighting deflation. Prime Minister Koizumi’s
decision to appoint a so-called “conservative” figure like Fukui has sustained
trenchant criticism, but this criticism may be - one hopes is - wide of
the mark.
Fukui is presumed to have been indoctrinated during his previous 40-year
stint at the BoJ, reaching deputy governor before resigning and becoming
head of a private think tank, the Fujitsu Research Institute. He had in
fact been expected to replace former BoJ governor Yasuo Matsushita, but
was foiled when they were both forced to quit in 1998 after a senior BoJ
official was ignominiously arrested, suspected of leaking market-sensitive
information to banks in return for lavish corporate entertainment and
fancy golfing holidays.
Although Fukui has argued that inflation targeting could be a dangerous
gamble and has said that it is hard to think of it as a “magic wand”,
he has not in fact ruled out the possibility of introducing the system
in Japan. But the real question is whether Fukui did a deal with the prime
minister to accept surprising choices of people for his deputies, and
a commitment to more stimulative policies.
Kazumasa Iwata and Toshiro Muto have also been appointed to the nine-member
policy board alongside Fukui, and Iwata in particular is known to hold
more radical and reformist views. Iwata is a senior official at the cabinet
office and a professor at the University of Tokyo, and favours less “orthodox”
policies - notably large monetary base expansion. He is also a supporter
of pro-reform economics minister Heizo Takenaka.
Muto is a former vice finance minister and it is hoped that he will help
to improve relations between the ministry of finance and the central bank,
one of Koizumi’s stated aims. It is very unusual to have such a top (permanent
secretary level) person from the finance ministry appointed to the BoJ
deputy governorship. Then there are really able people among the non-voting
but influential members of the monetary policy board, notably Messrs Shirakawa
and Hirano. These are intellectual heavyweights among the BoJ career central
bank personnel.
The change in the composition of the board has lead analysts to comment
that there will be more heated debates with fewer unanimous votes as more
radical alternatives are tabled. They think that there will eventually
be more determined monetary easing. The new BoJ is a different animal.
Eddie Chides
ECB
At a stately do in the Savoy in London surrounded by various corporate
musclemen, Antonio Fazio and Sir Edward George (governors of the Italian
and British central banks respectively) enjoyed an afternoon of back-slapping
on being jointly presented the Keynes Sraffa Award, which recognised the
recipients’ contribution to the strengthening of the economic relations
between the two countries. In his unerringly erudite acceptance speech
treating the progress of economic theory over the centuries, Fazio found
space to put in a topical plea for peace: “The experience of two world
wars, with their legacy of death and destruction, must impel us to relegate
war to the past as a means of solving international disputes. Great philosophers
have taught us that peace lies at the core of the future of humanity…
It is necessary to oppose all forms of violence.”
But Eddie’s comments were rather more bellicose than Antonio’s. Having
dispatched with the mandatory gushing about his “warm personal relationship
with Antonio” and deferring to his counterpart’s greater stature as an
economist (“I wasn’t cut out to be an academic economist,” Eddie explained),
the outgoing BoE governor changed his tune. He seized this opportunity
to take a few last-minute pot shots at the ECB before his central banking
career comes to an end, hinting obliquely that the ECB had been slow to
cut interest rates. He remarked that the ECB is “less proactive” in monetary
policy terms than his own, exemplary, central bank, because of the ECB’s
longer-term time horizons. But he emphasised that it was only “a matter
of degree”, and conceded that there are “no simple answers to how to respond”
to changes in the economic environment. Excusing his presumptuousness,
he said, “I don’t seek to make judgements as to which is better” - but
more recently he was less compromising. Could his exasperated comment,
“I see my European colleagues more often than I see my wife”, go some
way to explaining his current feelings about the ECB?
Testifying on the UK and the euro, Eddie was more explicitly critical
of the ECB’s sluggish response to changes in the economy, going as far
as to suggest the introduction of a “technical committee” to propose policy
to the decision-making board which would diminish the “risk of conservatism”
lying in such a large body and help “to move things along”. This provoked
a nettled remark from Wim Duisenberg at the latest ECB press conference
following its recent cut in interest rates (by a modest 0.25%), who raged,
in response to a question on what he thought of Eddie’s unprecedented
criticisms, “Well as you say, you have never seen one central banker telling
the other one what to do. You have now seen an exception. But that will
remain the exception.” Stirring stuff.
If Eddie is demob-happy, others are preparing to move into the governors' offices. Great things are expected from Mervyn King, the most distinguished economist to become governor of the Bank. The Bank is also to be graced with its first female deputy governor in its 300-year history, who happens to have spent 27 years of her lifetime at the Bank’s opposite number, the Treasury. Are the cynics who say this is Gordon Brown’s revenge for having had to accept an internal candidate (Mervyn King) to assume the governorship in July to be believed? And Stephen Nickell is the first external MPC member to have been reappointed. What makes him better than previous competent MPC members? Has Britain run out of monetary economists already?
Appointments to such high-level positions rarely come without comment or criticism, but allegations that Rachel Lomax is being foisted on the Bank as a “Treasury stooge” are potentially damaging to the Bank’s claims to be independent of political meddling. They are also grossly unfair. Lomax is a highly qualified individual, having been educated at Cambridge and the London School of Economics, combining strong economics with redoubtable management skills. She is taking on the big job of deputy governor for monetary policy, succeeding Mervyn King himself in that powerful role.
Apart from several high-ranking positions in the government, she was also vice-president and chief of staff at the World Bank from 1995 to 1996. Rumour has it that the reason her stay was so brief was that she had an almighty bust up with Jim Wolfensohn, provoking some to speculate that she has something of a temper (but most put it down to Jim’s oversized ego). She is clearly an independent-minded lady, pioneering the feminist cause at the Treasury in the seventies when she negotiated time off to look after her newly born children.
Rachel Lomax has said of her rise through the Treasury, “If you stick around in an institution like [the Treasury] for long enough, they forget you are a woman.” Well, the men at the Bank would be rash to make any such assumption, and she will be flanked by two other women on the MPC, Marian Bell and Kate Barker. Former MPC member Sir Alan Budd, who worked with Lomax at the Treasury, said in her praise: “This is a really first-class appointment, and the Bank of England is really lucky to get her.” To which we say, “Here, here.”
Doves VS.
Hawk?
Then there is Richard Lambert, a former editor at the Financial Times
from 1991 to 2001, having worked there since 1966. His lack of any formal
grounding in economics (he read history at Balliol, Oxford, a subject
not even nowadays on the national curriculum) is noteworthy, but he is
widely respected in the City, having also been director of AXA and the
LIFFE - these posts will be relinquished when he joins the MPC in June,
when Christopher Allsopp leaves. He has also been a member of the well-publicised
“shadow MPC” set up by The Times newspaper last November, which publishes
its own hypothetical voting decisions parallel to the real MPC votes.
Lambert has voted three times for no change, and once for a cut; does
that make him a dove? Not necessarily.
In fact, recent appointees to the MPC, in particular internal Bank people
Sir Andrew Large, the other deputy governor (for financial stability),
and Paul Tucker, head of monetary operations, have shown an independent
spirit by voting against the flow. With an extra two fresh faces, some
say that debate in the MPC may become rather more lively than it has been
in the past (but how do they know?).
Richard Lambert will bring to the table an editor's instinct for clarity
and plain speaking - not virtues one immediately or necessarily associates
with central bankers or economists. Other commentators say that the changes
mean that the MPC is now stuffed with doves, as well as, interestingly,
having a majority of europhiles. Is the Treasury ganging up on hawkish
eurosceptic Mervyn King, ensuring that he is outnumbered on the MPC? Is
Labour packing the MPC with doves who will drive rates down to the floor
to boost the economy before the election due no later than 2006? Perish
the thought.
This talk about doves vs. hawk is mostly nonsense. People change their
views as the world changes. As deflationary tendencies strengthen (with
the UK outlook getting worse somewhat faster than Eddie George had led
people to expect), it is no bad thing to have people with a mixture of
perspectives and career experiences getting their hands on the monetary
levers. The MPC has plenty of economic firepower already. In fact, the
really good thing about both new appointments is that they bring wholly
new perspectives from the great world outside to the MPC. With such people
on board, it will definitely not become an academic debating society.
The three-member board of the Swiss National Bank is to get a new member too, as the respected vice-chairman Bruno Gehrig is to bow out of central banking to become chairman of insurer Swiss Life. Unkind rumours allege that Gehrig, slighted at not being chosen for the chairmanship which Jean-Pierre Roth now occupies, decided to try his luck elsewhere. In any case, he is to be ably replaced by the spry Oxford-educated Philipp Hildebrand, who at 40 will be one of the youngest of the SNB directorate. He will run the department in charge of conducting monetary policy, reserve management and payment systems. No doubt his background in both banking and academia (he has a number of publications to his name) will serve him well; and he is well respected in government circles, with his advice sought over Switzerland's bust-up with the EU over savings tax and bank secrecy.
Forget scrapping between the ECB and outsiders, what about the internal squabbling that has recently besmirched the ECB’s reputation? Amusingly or not, Lucas Papademos’s smile has been the subject of much speculation and inference. Columns were filled to bursting in the financial press this week when the corners of the ECB vice-president's mouth curled at the mention of staff inflation projections. Such tracts are not known for their comic qualities, least of all among central bankers. So what was the reason? Was it a sarcastic slight on Dr Issing and his team? Was this flicker of indiscretion a moment of catharsis for those long suspicious of the retentive monetarist dogma that dominates in Frankfurt? A call to arms for ECB doves? Unlike Leonardo's masterpiece, however, the former governor of the Bank of Greece is able to talk as well as smile enigmatically, and he admitted in Thursday’s press conference the full extent of his differences with the good doctor: “There are no tensions whatsoever. Occasionally, we do disagree: I think that sometimes he tends to prefer Bordeaux and I prefer Burgundy. This may complicate sometimes the decisions in the council on which wine to choose for the lunch. But that's it.”
Embroiled in controversy, and under severe public pressure, the governor of Kenya’s central bank, Nahashon Nyagah, had no real option but to call it a day. He lamented, “When I realized that the public was being orchestrated to sacrifice me, while nobody on the government side raised a finger, it was time to say kwaheri [goodbye] and move on.” Nyagah was forced to resign over the alleged mishandling of the liquidation of Euro Bank, which was discovered to be mired in unsustainable debts, as some $17.5m of public funds seemed to disappear into thin air. Nyagah continues to assert that he is free from censure, instead blaming public institutions that pumped money into the crippled bank.
Nyagah is now calling for a public investigation into the scandal. He put in question the very independence of the central bank, claiming that it is held in a vice by the finance ministry, to which the central bank must refer whenever it is to do anything significant, and for this reason there was a delay in closing down Euro bank. He complained, “There will be no independence of the Central Bank of Kenya as long as one has to consult the Treasury before making a move. While we have had no major problems, there is simply no latitude for action.” Immediately on receiving clearance from the finance ministry, however, the central bank moved to shut down the bank, but not before.
He also made clear that his decision was personal, and dismissed hurtful rumours that his family had been attempting to engineer his safety: “I can tell you that no member of my family was at State House to see the president over my case. In fact my old Mzee [father] was in Mbeere [central eastern Kenya]. There really was no need for any intervention.”
Nyagah’s resignation comes at a time when Kenya’s new president, Mwai Kibaki, has promised to sweep out all the “corrupt” officials appointed during the previous government. He has already found a replacement for Nyagah in the shape of Dr Andrew Mulei, an economist with vast experience in African public finance positions, including working at the IMF and as adviser to the central bank governor. He has most recently headed the African Centre for Economic Growth, a Nairobi-based think-tank. He will be the sixth indigenous governor since Kenya’s independence.
Raise your glasses, please, for Alan Greenspan (KBE), who turned 77 on 6 March. Now that Japan’s Hayami has at last surrendered his position as the world’s oldest central banker, Greenspan can truly lay claim to being the paterfamilias of the central banking clan. Surely a well-deserved birthday present. But many Republicans would be loath to wish Alan a happy birthday, given his recent unwillingness to endorse President Bush’s recent controversial tax cuts. Inconveniently for the US administration, Greenspan observed that this would either need to be offset with counterbalancing tax rises, or a cut in the budget - worrying, as he does, that the US’s bulging budget deficit might just spin out of control.
The Republicans’ reaction to Greenspan’s remarks (“seriously wrong”, said one) have caused Democrat Senator Charles Schumer to excoriate what he phrased “an ongoing orchestrated whisper campaign to discredit” the Fed boss, and he seized an opportunity to ingratiate himself to the supremo by lauding Greenspan’s “outstanding leadership” and “exemplary conduct”. But some Republicans are suggesting, rather absurdly, that the White House considers Greenspan such a nuisance that he may not be reappointed to a fifth term. Schumer believes that “all of this whispering and all of this desire to sort of muffle the Fed... to say that the chairman ought to go, that the chairman's outlived his usefulness, I think is very bad...” No wonder, then, that Glen Hubbard, the White House economic adviser who himself aspires to fill Greenspan’s shoes one day, was compelled to state, “We all have great confidence in Chairman Greenspan. He is one of the finest chairmen we’ve had… The chairman of the Fed has the right to cast independent views. We have zero concern.” Hearing is believing? It just so happens that Mr Hubbard has since resigned.
Smooth talking IMF spokesman Tom Dawson almost slipped up at a recent press conference when quizzed about the possibility of the relocation of the IMF’s offices to Europe. This is of course a pretty big deal, given the American stigma that so many (ill-informed?) people identify with the multilateral institution, but Dawson dismissed the question, remarking, to much hilarity, “I'm not sure it's my job to share rumours with you.” He added that, in fact, “I think my job is to dispel rumours.” Indeed. He went on quite rationally to explain that the Fund’s articles of agreement state that it shall be headquartered in the country of its largest shareholder, and that a move to Europe would require Europeans to combine their shares, and, he said, “I have not heard any rumours on that one, though I - I won't say what I was going to say. I'll get in trouble.” Woops. But what was he going to say? Some kind of dig at the Europeans? Thankfully his self-preservation instincts kicked in, otherwise he might soon have found his job on the line, if these rumours are to be believed. (see the transcript here: http://www.imf.org/external/np/tr/2003/tr030304.htm)
Talking of moving offices, the ECB is looking to employ someone specifically to tell people that that is what they are doing. Why on earth not? Might help boost the economy. (see here: http://www.ecb.int/job/ecb03076.htm)
Look out for a cluster of central bankers roaming the streets of Istanbul shortly, as Turkey’s government hosts a high-level meeting of governors and other representatives from central banks (as well as finance ministries, stock exchanges and multilateral organisations) from countries around the Caspian will gather to discuss a variety of economic issues. Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Ukraine and Uzbekistan will be represented, and discussion will centre on central banking reform, currency convertibility, foreign exchange reform, the regional securities market, as well as the ongoing privatisation of state utilities and infrastructure. It is hoped that progress will be made in improving the underdeveloped and undercapitalised banking network in the former Soviet Union states, which are greatly in need of foreign investment and technical expertise. The planned reform of investment regulations, collateral laws, accounting standards and bankruptcy legislation is expected to stimulate this, and they will also discuss their commitment to the regulation of regional banking laws to combat money laundering. Click here to find out more: http://www.bemltd.com/Pages/Shows/programmes/CaspianFianace03.htm
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