22 September 2003

NEWSMAKERS

 

Out With The Old, In With The New
So, Jean-Claude Trichet has received the rubber stamp from the European Parliament, and is safely on his way to Frankfurt to run the ECB. Subjected to a grilling by its Economic and Monetary Affairs Committee in one of the seemingly infinite rooms of its nightmarishly labyrinthine buildings in Brussels, Trichet gingerly and with consummate professionalism picked his way through the minefield of questions laid out for him, emerging unscathed. One could not help but admire his nimble footwork.

But curiously, the committee didn't seem greatly interested in his opinions on the ECB's monetary policy, instead betraying an almost morbid obsession with the death throes of the Stability and Growth Pact. Christa Randzio Plath, who chairs the committee, afterwards remarked that this was "astonishing". But Trichet delighted in repeatedly referring to the Biblical wisdom of saving the fat cows in times of plenty (or in Europe's case not running a budget deficit in times of economic growth) and lamented the inability - or unwillingness - of certain countries, including his own, to do so.

Trichet must be one of the few people around who think the pact has still got teeth. He even maintains with a straight face that it should not be tinkered with. He called on all central banks to encourage their governments not to exceed the threshold, but said that ultimately each national government "must rise to the responsibility placed on them" to obey the rules - thus laying down the gauntlet to France. Could he be enjoying his revenge on certain people in his mother country who (they whisper) forced him to stand trial unfairly?

One detected Trichet is looking forward to preaching from his new "bully pulpit". Whether this will have any impact on government policy is another matter, but it sets the stage for the big confrontation that is likely to be the hallmark of his presidency at the central bank - that between monetary and fiscal policy, or between the monetary and political authorities in Europe.

A couple of killjoys did try to prevent this from happening by voting against Trichet's appointment - including one of his fellow countrymen, a die-hard Gaullist (to whom the very concept of independent central banking is an anathema). But the large majority, twenty, voted in his favour; the remaining four abstained - all British, because the UK is not part of the euro zone. So why bother turning up and asking - perfectly decent - questions in the first place? It's worth noting that all the Swedes voted Trichet in.

Non, Je Ne Regrette Rien
It may be the eve of Wim Duisenberg's departure from the ECB, but if anyone was hoping for a token show of contrition from the stern Dutchman for his occasional indiscretion, they will have been sorely disappointed. At his final showdown with the same committee on the previous day, testifying on the ECB's monetary policy, one mischievous MEP inverted a previous question and asked "si vous avez également, peut-être, quelques regrets...?" The audience, doubtless well versed in Wim's bloopers, found much to snigger at in his defiant reply, which would have been enough to make even the magnificent Edith Piaf proud: "The short answer is: I cannot think of any!"

But his examiners were in a generous mood, almost all of who courteously prefaced their questions with hearty congratulations for his quite literally unsurpassed performance as president of the ECB - he was praised for his unstinting cooperation with the committee, his "dry but excellent sense of humour", and his technical as well as political bravery. One went as far as to rate him above the maestro himself, despite the fact that he "deeply disagrees" with Duisenberg's monetary policy: "I would undoubtedly prefer a safe Duisenberg to a Greenspan" (the latter is apparently guilty of "stoking the flames of speculation while talking of irrational exuberance").

But one poor questioner was racked with existential doubt: does this committee really have any effect on ECB policy, or is this all a bit of a waste of time? "You can rest assured, that on the question 'Is this dialogue at all useful?', the answer is yes," Wim confidently countered - although he was strangely unable to think of a single example to support his assertion, with the exception of the altered layout of the ECB's annual report...

His exit was truly tear jerking: "I cannot tell you how difficult it is to say farewell. I have really enjoyed being with you..." Please, stop! Now it is Trichet's turn to snuggle up to this most obliging bunch of politicians.

Sweden Spurns The Euro
Europe's unifiers have been profoundly shaken by Sweden's unambiguous decision to steer well clear of the euro for the time being. Both the Riksbank and the ECB have since publicly been at pains to clarify that the result of the referendum will have no effect on their policies or their currencies.

But privately, one suspects that their disappointment is widespread. As an institution, the Riksbank came out in favour of introducing the euro long ago (which is more than the Bank of England has done, preferring to keep mum on what it really thinks - whatever for?); and individually, five of the six board members back euro entry. As one of them, Kristina Persson, recently put it: "As I see it, the risk to welfare comes from remaining outside of the euro area."

For the ECB's part, vice-governor Lucas Papademos had said he would be "delighted" if Sweden were to join the euro area. Days before the vote, Wim Duisenberg was dared to give his best argument for Sweden joining, but he shied away, explaining that the Swedes are "a very adult and well-educated people" and that they could "make up their own minds" - although he could not resist warning portentously that Sweden would remain subject to the "vagaries of the exchange market". This argument clearly carried little sway with the Swedes.

His reticence stems from a fear of being counterproductive: "In the UK they would say: 'Now that this bloody foreigner has advised us to go in that direction, we shall certainly go in the other direction'. I am afraid to say it might happen in Sweden." In hindsight it would seem to have made little difference. Let us see how the ECB will attempt to coax the bloody-minded Brits into the euro zone should it come to their turn.

Mboweni Takes Flak...
The admirable Tito Mboweni, governor of the South African Reserve Bank, is under bombardment as fellow countrymen splutter at his recent pay rise. Mboweni has been accused of double standards for accepting a pay rise of 9% this year and 12% last year (significantly over the inflation target of 3-6%), while apparently preaching a "wage restraint gospel" that workers' pay should rise in line with the inflation target.

This has provoked the critics, despite the fact that, as the central bank has quite reasonably pointed out, Mboweni plays no role in setting his own pay cheque. Last year he was paid 2,380,000 South African rand (US$314,092), which as a matter of fact compares relatively favourably with other central bank governors' salaries - not to mention Alan Greenspan (who once amiably advised Mboweni to try to look "older and wiser"), who has a notoriously paltry intake of $172,000, or Toshihiko Fukui's pay of $276,076 in Japan. However Mervyn King and Wim Duisenberg fare significantly better (both over $400,000), while Joseph Yam in Hong Kong practically wallows in his $1,120,000 a year.

South Africa's finance minister, Trevor Manuel, has come to Mboweni's assistance, coolly observing that the finance portfolio committee of the National Assembly could take the issue up with Mboweni at their regular meetings if it so desired. He also noted that the remuneration committee that set the governor's salary had taken into account the fact that in terms of the actual packages of executives in the national market (not just commercial banks) the Mboweni's package lagged the market by 18.1%.

But Aims High
Such heavyweight political support is valuable for Mboweni, who, some say, has his eyes on the presidency when current president Thabo Mbeki's term ends in 2009 (Mboweni's current term ends in 2004). Mboweni, who enjoys smoking the occasional Davidoff accompanied by a nice bottle of Margaux with his bank colleagues, has come a long way from his beginnings as an ANC guerrilla fighter in the 80s - so a progression to the presidency would not seem to be too out of character. Still, this is rather at odds with Mboweni's own modest predictions for his future: "I am not an ambitious person... I'm only 44, so I suppose I still have a lot to do in life - a little farm in Dullstrom maybe."
Greenback's End...
The end of the greenback is nigh! On October 9 a new and improved version of what has hitherto been affectionately known as the "greenback" will enter into circulation, but the new $20 note will not actually be green. The background is to be a shade of "subtle green, peach and blue". And that is by no means all: there are also plans for revamping the $50 and $100 bills.

Different colours will be used for different denominations, which, the Fed tells us, "will help everyone - particularly those who are visually impaired - to tell denominations apart." But the Fed cautiously warns that consumers should not use colours alone as a way of telling their money is real, as the new note boasts a host of other "user-friendly security features". "Safer, smarter, more secure," is how the Fed describes its new money.

"This is the most secure note the US government has ever produced," crowed Fed governor Mark Olson. Careful now! This sounds ominously similar to the Bank of England's hubristic remark of its ill-fated £5 note last year that it was "the most secure five pound note we have ever produced." And, hey presto, it turned out to be dud as, despite the space-age technology employed, one small matter was overlooked: the serial numbers rubbed off. Confound it all! Well, let us hope that there will no repeat of this embarrassment at the Fed.
And Howard's End
Sir Howard Davies, who leaves the UK's Financial Services Authority at the end of this week to take up the job of head of the London School of Economics, sensibly ducks questions about whether he wanted to be governor of the Bank of England. In his latest interview with the house magazine of the Securities Institute, however, he vouchsafes that he actually applied for the LSE job in August 2002. Mervyn King's appointment was publicly announced in December of that year, but may have been decided on by the Chancellor Gordon Brown earlier.

Whether Sir Howard saw the way the wind was blowing, whether he just wanted a move away from the City, or whether he was actually tipped off that he wasn't in the running for the Bank job, I do not know. I suspect the latter. Is it just a coincidence that Andrew Crockett (now Sir Andrew), another candidate for the Bank job, told the BIS Board in July 2002 that he wanted to step down the following March, some nine months before his term would be up? At the time many of us thought he was advertising his availability for the Bank job. Now it looks rather as if somebody in Whitehall told both Davies and Crockett the bad news early in the summer of 2002, after which they both advertised their availability for alternative employment (Crockett is joining JP Morgan Chase on October 1).
What's Goin' On?
Bank of England MPC member Stephen Nickell has just accomplished the rather unenviable task of explaining what the switch from an inflation target based on the RPIX index to the HICP index, as used in Europe, actually means. Inflation indexes: who cares? What's the problem? The problem with the switch to HICP, as Nickell put it, is to explain "what the hell's going on."

Crucially, it implies a new target. In the long run HICP measured inflation is about 0.8 percentage points lower than RPIX due to how it is calculated and because it excludes housing prices. The present target is at 2.5%, but the chancellor is keeping quiet on what level the new one will be fixed at, or indeed when the Bank will be told. Nickell's best guess, as targets "usually end in 0s or 5s", is 2.0% - equivalent to a 2.8% RPIX target. So there will be "slightly looser monetary policy in the short run" to bring the target up. Backdoor Keynesian aggregate demand boosting? More Treasury tinkering or just another one of Labour's stealth taxes?

Also, the housing price component of the RPIX is volatile and can greatly increase the difference in the inflation rates given by the two indices. But will its absence in the figure affect monetary policy? Nickell observed that the change of indices would only make a difference if the Bank was very good at forecasting housing booms. Which it is not. Well that's alright then. So, Ed Balls, what the hell is going on?
Gerashchenko Into Politics
The global political establishment can now boast another ex-heavyweight central bank governors to its number: the formidable Viktor Gerashchenko. He resigned from Russia's central bank in March 2002 citing reasons of ill health (although some have speculated that he was subject to some gentle encouragement), memorably explaining at the time, "I'm 64, and I don't want to die at my office desk." Perhaps he wanted to go down fighting in the more lively fashion that Russian politics might allow - although his reign at the central bank was by no means uneventful.

Gerashchenko will be nominated to the Duma (Parliament) for the pro-communist "patriotic" bloc, established at the end of August. Gerashchenko was occasionally referred to at the central bank, where by the way an old unexploded WW2 bomb was recently discovered on the premises, as Hercules. An apt characterisation? He certainly shows no diminution in his prodigious energy levels. Now, having slain the Hydra's central banking incarnation, another head has reared itself in the shape of politics. Gerashchenko will surely inject some invaluable zest into this fledgling party.

Afghan Treasure Hunt
Anwar-ul-Haq Ahady, the central bank governor in Afghanistan, has been on a treasure hunt - and was not disappointed. Together with the country's president, finance minister and justice minister, he descended into the subterranean expanse that lies beneath President Karzai's palace in Kabul, and succeeded in penetrating a vault that has remained walled up since 1989 during communist times.

Happily, the Taliban were unable to lay their hands on the priceless antiquities of gold, silver and other treasures that it contained, despite their best attempts to gain access, by fair means or foul. "I think the Taliban tried to open it, but bank officials somehow managed to prevent them," Ahady told reporters. "There were numerous rumours during the last 15 years that most of the gold had been taken from the vaults." According to the finance minister, its guardians were "beaten almost senseless", but never actually allowed them to get in. According to one version, officials deliberately broke the keys to bar access.

Only now has the government found a way into its own vault. It had hoped the company that crafted the lock might have been of some help in getting in, but rather infuriatingly it no longer exists. Still, aided by some resourceful local locksmiths, they have now managed to confirm that their treasure, which could be worth some $90 million, is intact. No small sum, when one considers that total Afghan foreign exchange reserves are around $600 million.

Things Looking Up For Buenaventura
Meanwhile in the Philippines things are looking up for central bank governor Rafael Buenaventura and 20 of his colleagues. After being accused of "grave abuse of discretion" in the central bank's closure of a local bank in 2000, Buenaventura faced the possibility of being suspended from office for a year; now however the Supreme Court has dismissed the criminal charges filed against him. The bank's legal counsel says, "The criminal aspect of the rulings are in favour of exoneration. Things are in favour of (Buenaventura). As far as the Supreme Court is concerned he's not liable."

But Buenaventura is also the butt of a low-down scam which uses his honourable name to lure less alert members of society into handing over their name and bank account number in order that their account can be credited with two million pesos ($36,400) within a week, but - here's the catch! - they have to pay a 10% "withholding tax" before the "prize money" can be released. Money really does grow on trees.

New Governor In Iraq
In Iraq a new governor has at last been found, appointed by the US-appointed Governing Council in the shape of Sinan Mohammed Rida al-Shibibi. At 62 and with a PhD in economics from the UK, he worked in Iraq's planning ministry until 1980 before joining the UN Conference on Trade and Development in Geneva. He affirmed his mission to keep inflation in check, but admitted that it "is going to be tackled at this stage with resources, rather than with instruments." It hardly needs to be observed that his task is not an easy one. As he resignedly points out, "You cannot support the currency, you cannot intervene in the markets without actually having reserves."

Ill Wind Blows At Riksbank
On a rather breezier note, in August the Riksbank paid out over $100,000 in compensation to a disgruntled employee. 44-year-old computer technician Göran Andervass had fallen out with one of his colleagues after being "provoked by a disgusting fart - a right stinker - at 7.30 am in my office", he told the court in a statement. Taking exception to this, and believing it to have been done purely to irritate him, Andervass took it upon himself to censure his colleague in a manner that only seemed to escalate the crisis, resulting in his taking an apparently unduly long sick leave (according to Norwegian news service Nettavisen) and ultimately being "given notice due to personal reasons" in late 2001.

He then took action against the bank, which "was advised by our legal representative to arrive at an amicable settlement with this person, which it then did," it told Newsmakers, and it now considers the issue to be "over and done with". But Andervass's legacy lives on: such behaviour will no longer be tolerated at the bank. It told Nettavisen: "We do not have a specific fart ban, but we have ethical guidelines and naturally, farting is simply not done here."

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