NEWSMAKERS
Will
Webb Weather The Storm?
There may be trouble brewing in Peru. The country is mired in political
turmoil, as the president, Alejandro Toledo, is beset by squabbling and
ineptitude in the party ranks. The economy may be growing faster than
any other in Latin America, but media reports have suggested that there
is a bit of fisticuffs going on in the central bank between the governor,
Richard Webb, and the board. Investigation by Newsmakers can shed some
light on this story.
Although the extent of open hostilities in the central bank may be being
exaggerated, it seems that the board has been acting provocatively. They
have taken a series of administrative measures against Webb's wishes:
firing his personal adviser and several other key staff including the
general manager that he personally chose.
Many observers have inferred from this that the board is plotting to squeeze
Webb out, and have consequently pledged support for the governor. Institutions
such as the Banker's Association, and several politicians, have criticised
the motivations of some board members in the media, alleging that they
are politically driven, and that the more radical among them may be attempting
to take control of the bank.
For his part, Webb has until now remained silent. But board members have
only exacerbated the situation by breaking central bank policy that the
governor is its sole mouthpiece by talking out of turn in an attempt to
justify their actions.
Clearly something is wrong. If nothing else, the incident could be said
to illustrate what a source has described to Newsmakers as a second-generation
problem of independent central banking: "How does one reconcile autonomy
with internal malfunctioning? What procedures can be used to resolve internal
differences that lead to malfunctioning? Who can be appealed to?"
In Peru, only Congress can dismiss board members, and then only if they
are found guilty of "grave misdeeds". This has never happened yet, and
it is plain that if such powers are to be invoked, they should tread carefully.
Unfortunate precedents could allow future meddling governments to cramp
the central bank's independence at will.
Nicholl
Extends His Stay
Against all the odds, Peter Nicholl - the New Zealander who was parachuted
in to take charge of Bosnia-Herzegovina's central bank on account of the
complications with appointing a national - is to stay in the job a little
while longer. According to the law laid down in 1997 governing the central
bank, the governor for the first six years must be a foreigner (ie Nicholl);
and after that a Bosnian citizen. Nicholl's six-year term expires this
year, but he is now to stay an extra 18 months until the end of 2004.
How, you may well reasonably ask?
Simple really: he was made a Bosnian citizen. The presidency has presumably
decided that the country is not quite ready to take the risk of appearing
too ethnically partial by appointing a national (ie from one of the three
major ethnic groups - Bosniaks, Serbs or Croats) as governor. It therefore
had to engage in a little central bank intervention, which due its uniqueness,
in this case may be acceptable. As Nicholl explained to Newsmakers, "While
it is formally the governing board that appoints the governor in future,
the presidency have clearly stated their support for my continuation as
governor."
They have instead opted for the more gradual approach: when Nicholl steps
down, he will be replaced by one of the current vice-governors, Kemal
Kozaric, who is a Bosniak (the other two vice-governors represent the
Serbs and the Croats). Nicholl told Newsmakers, "It is a very good sign
that they have been able to agree now on the person they support to become
the governor when I leave." Nicholl gave the choice of Kozaric his blessing,
deeming him to be a "good choice". To appease the other ethnic groups
for the choice of a Bosniak as governor, the presidency has requested
that the next internal controller of the central bank be a Croat and the
chairman of the managing board of the State Deposit Insurance Agency (a
position that is also currently held by Nicholl) should in future be a
Serb.
Across the border, Mladjan Dinkic has not been as fortunate as Nicholl. Ill-wishers are spreading the word that the governor of the newly formed Serbian National Bank is on the way out. Frankfurt-based Serbian-language daily Vesti recently reported that according to the new central bank law that is said to be currently going through parliament "there isn't the remotest possibility that the current governor could retain his position". Supposedly, Serbian finance minister Bozidar Djelic is scouring the land for a suitable replacement.
But in fact, curiously, nobody at the central bank has seen this bill or even been consulted about it. This makes it difficult to take it seriously at all - the central bank isn't, instead regarding it as something of a phantom bill designed purely to stir up trouble. But it is said to stipulate that the governor must be someone who has worked in the banking industry for at least ten years "and, more importantly, cannot be a member of any party", according to Vesti.
Dinkic is a founder and vice-president of the G17 Plus party, which, although recently formed, is gathering increasing public support. It is highly unlikely to win the next elections, but it is still viewed by the government as competition. Consequently these attacks on Dinkic have been interpreted as political manoeuvres aimed at discrediting him. Despite being outspoken on many issues, he has made a formidable contribution to the revival of the economy, and many see Dinkic as something of a threat - that would be best eliminated. The highly politicised environment in Serbia has meant that politics enters into everything. But Dinkic will not stoop to their level: "I do not comment on street gossip rumours. My work can be checked in the parliament and they can say what is wrong with it."
Problems
In The Pacific
The financial system in the Solomon Islands - including the central
bank - was momentarily paralysed earlier this month, after a peculiar
turn of events came to a head. Last November, Newsmakers reported how
it was being held to ransom by the harridan "Dr Jenny", mastermind of
a cynical get-rich-quick scheme designed to bleed credulous islanders
of their cash. This pyramid scheme was sucking liquidity out of the economy
to such an extent that central bank governor Rick Houenipwela was forced
to exhort the public not to believe this particular brand of mumbo jumbo
and invest in this diabolical scheme, benignly named the Family Charitable
Fund (FCF).
Ultimately the FCF proved no match for the central bank, but for a time
it had the upper hand. It had been demanding Houenipwela to revoke a letter
he issued to commercial banks in 2002 advising them to be wary of the
FCF. Incensed by this, and claiming that the central bank was actually
forcefully preventing banks from opening accounts for the FCF (which it
cannot legally do, even though the FCF was itself illegal), it all got
a bit ugly. As the central bank told Newsmakers, if the governor didn't
revoke the letter, "harm would be caused to the governor, central bank
staff and central bank premises." So, to protect his employees, Houenipwela
was left with no option but to issue what the central bank describes as
"a rather meaningless letter" urging commercial banks to disregard his
previous letter of advice.
The situation worsened when FCF investors started pestering commercial
banks for their money. As the central bank explained, "This was when ANZ
[one of the main banks] decided that they would not be intimidated by
a pyramid scheme and decided to close its operations until the security
situation improved. By Monday all the commercial banks and the central
bank decided to take collective action to close their operations."
A meeting was then held with the police, commercial banks, the central
bank and the prime minister's office, resulting in the government's assurances
that the police would lock up wayward FCF leaders and guard bank premises.
With the troublemakers safely behind bars and the demise of the FCF assured,
by the next day it was business as usual. But quite some excitement for
a sleepy Pacific island!
Being a senior central banker is a job fraught with risks, as readers will be well aware - they have not only to protect the systemic stability of the financial system, but also increasingly their own personal safety. The trial of Banque de France governor Jean-Claude Trichet is a particularly high profile case, but other examples abound, as Newsmakers recently reported concerning Indonesians who are in the dock for "dubious practice". Now, an ex-central banker in Ukraine has been put in the cooler for five years after being found guilty of violating a law which prohibited the central bank from issuing foreign currency loans to commercial banks. Former first deputy chairman of the board, Volodymyr Bondar, personally authorised a $15 million loan to a local bank via a bank in Zurich, but the prosecution argued successfully that this inflicted "significant damage on the state". Bondar argued that the deal was "of state importance", and has the support of former central bank governor and now centre-right opposition leader Viktor Yushchenko who says the trial was an attempt by the government to get one up on their opponents ahead of the 2004 presidential election. Central banking's a risky business, but somebody's gotta do it.
First there was Pepsi Lite, now there is Central Bank Lite - a slimmed down central bank, a central bank on a healthy diet shedding high calorie staff. Rumblings continue in France over the plans for a Banque de France Lite. Proposals backed by the governor to cut the number of branches from 211 to 96 brought nearly 40% according to the bank (75% says a union representative we spoke to) of the employees out on strike on May 6 and 80% of regional branches were closed. Five thousand workers protested in Paris, unions claim, with support from local politicians, but the bank's operations in the capital were not affected. Negotiations are now taking place between the heads of unions (there are seven of them) and the governor over the bank's public service contract with the government, which will set the tone for the restructuring. Visitors to the Banque de France now report placards on neighbouring buildings denouncing Trichet's plans.
For Trichet, who reorganised the note printing and other departments at the bank, this would represent the culmination of his programme of restructurings and signal to Frankfurt and Brussels that he is a man who gets things done. While he is unlikely therefore to back down, the current climate of public sector protest in France does not make it easy to play hardball for too long. However, more strikes are in the pipeline and June looks set to be an eventful time at the bank. Whether it will witness a return to the events of the 1987 strikes remains to be seen, but Newsmakers can't help wondering where exactly picket lines fit into the ECB's operating framework of monetary policy.
Most central bankers when they retire go to a better paid job in the private sector, resume academic studies, or maybe just pack it all in. Not Arminio Fraga. Having recently stepped down as governor of the Brazilian central bank, unconventionally, he seems to see a future for himself in comedy. Perhaps the stress of running the central bank was all a bit too much. He was last spotted on Brazil's prime time comedy show disguised as a taxi driver and cracking self-referential gags.
Bloomberg reports that Fraga has been cast as some know-it-all cabbie who freely offers his opinion on economic affairs. An inquisitive customer reading the papers says to Fraga, "My goodness, I can't understand this dollar that goes up and down, up and down all the time. [Pause, followed by a look of recognition.] Hey, don't I know you from some place? Aren't you in the eight o'clock soap opera?" [Here comes Fraga's punch line.] "No, actually, I think you saw me more often during the nightly news programme." Regular watchers of the show would appreciate that in fact Fraga had previously regularly been the object of satire on that very same programme. In one episode, Fraga's character admitted to trying to trip up the dollar with his foot when his attempt to make it slip over with a banana skin had been foiled. The idea being that it would fall against the Brazilian real, or something like that. Priceless.
Fraga is not the only central banker to have been the victim of biting satire. Only it seems that in ECB wannabe Jean-Claude Trichet's case, he just didn't get it - he is the latest person to have fallen foul of the British comic sensation Ali G. Trichet apparently thinks he is "magnifique", according to the Independent (a UK newspaper), having enjoyed his show on French cable TV. Imagine Trichet's amusement when it was pointed out to him that this character was not the clown he appears to be, but in fact a witty satirist of British street cool: "Non, ce n'est pas possible." (Ali G, a British entertainer, does spoof interviews with public figures. )
"This is a language in which it is possible to speak without saying anything." Mike Moscow, President of the Chicago Fed, 2002 "Since becoming a central banker, I have learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said." Alan Greenspan, testimony to Congress, 1987
Visit the bank of England's flash new museum section of its website where you can discover all about the venerable institution's history: http://www.bankofengland.co.uk/museum/walkthrough/timeline_flash.asp
As Newsmakers goes about its job of peering into the business of central banks around the world, we are struck by the contrasts in the different ways central banks receive visitors. Some adorn their reception areas with smiling friendly receptionists, who usher you into a well-furnished waiting room where you can pass the time agreeably until your host, or a messenger, comes to fetch you for your appointment. Others seem determined to make it as difficult as possible to enter the precincts, surrounding themselves with heavy security, subjecting every visitor to intense screening and scrutiny, taking your passport into custody, and providing no waiting area. Others have decentralised or dispersed to a number of buildings located in various parts of the city so that you can turn up for an appointment only to find that you have to take another taxi elsewhere. Once we were almost threatened at gunpoint.
Newsmakers invites readers to tell us their stories of visiting central banks. In the case of central bankers, please tell us if your bank pays any attention to the welcome it extends to visitors. There will be a prize for the best story!
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