• Lipsky in – Caruana to complete the team?
• Multilateral consultation starts…
• …but will it ever end?
• “The great and good” to study IMF’s finance
• Fund to borrow in the markets?
• Indonesia sees off IMF
• Fed to brush up communications
• Volcker criticises US foreign policy
• Issing departs with warnings to the ECB -
• - and to the euro area members
• Stark gets economics
• Everybody wants to meet Trichet
• Akinari Horii replaces Eiji Hirano
• Competition among financial centres in the Middle East - Dubai
• -Bahrain
• - and Qatar
• Wolf surprised
• PBOC broadens investment portfolio
• Central bank to manage oil money
• Tulin quits CBR
• EMEAP reserves move
• Blanchflower for the UK MPC
• No stranger to Britain?
• Andrew Sheng frustrated with Asia
• Newsmakers round-up

Lipsky in – Caruana to complete the team?

The appointment of John Lipsky to succeed Anne Krueger as IMF first deputy managing director, the second-highest position at the Fund, has been widely welcomed. John knows about finance, about financial markets and about the difficulties of reforming the Fund – three prerequisites for effective reform. Managing director Rodrigo de Rato has most of his new team in place – the team that will have to reinvent the Fund, or be written off as duds.

With the impressive Raghuram G. Rajan as his economic adviser (see Rajan’s recent thoughtful speeches on its future on the IMF’s website), Masood Ahmed giving it a fresh face as head of external relations, and Mark Allen settling into the policy review function where he succeeded Tim Geithner, all that remains is to confirm rumours (first reported in Newsmakers in February ) that Jaime Caruana, who will shortly leave his post as governor of the Bank of Spain, is to head Big Mac – the new Money and Capital markets unit. That’s a pretty good first team. Now all Rodrigo needs is the backing of Hank Paulson the new boss down the road at the US treasury. Yes…

page top^

Multilateral consultation starts…

Now to work. Predictably, the first multilateral consultation under the Fund’s refreshed mandate will focus on the issue of global imbalances and involve several systemically important members and groups of members – China, the Euro Area, Japan, Saudi Arabia and the United States – all of which have agreed to participate in this first consultation.

“These economies are either ones with large current account surpluses or deficits, or they represent a large share of global output,” Mr. de Rato noted, adding, “Their cooperative action can play a major role in the orderly unwinding of these imbalances and in sustaining global growth as savings, consumption and investment patterns adjust.”

“The great and good” to study IMF’s finance

Meanwhile, de Rato has done something about the problem of dwindling Fund finances. First he set up a new $8.7 billion investment account to generate additional income from the Fund’s currency reserves (essentially by lengthening the duration) and then last month he created a committee to recommend ways in which the Fund, and especially its technical assistance and surveillance work, can secure adequate long-term financing. In the past these have been in effect subsidised by income from “charges” levied on borrowing members. But a financing model where such activities are financed by the borrowing members is considered to be out of date in a world where countries rely increasingly on private capital flows.

The committee sports a galaxy of central banking talent. It will be chaired by Andrew Crockett, formerly of the Bank of England, who also worked at the Fund for a time and became general manager of the BIS, the central bankers club – he is now president of JP Morgan Chase International. Its members are Mohamed A. El-Erian, ex staff member of the Fund and president of Harvard Management Company (interviewed in the current edition of Central Banking); Alan Greenspan, now of Greenspan Associates; Tito Mboweni, governor of the Reserve Bank of South Africa; Guillermo Ortíz, governor of the Bank of Mexico; Hamad Al-Sayari, governor of the Saudi Arabian Monetary Agency; Jean-Claude Trichet, president of the European Central Bank; and Zhou Xiaochuan, governor of the People’s Bank of China.

Newsmakers hears that one of these “eminent persons” when approached to join the committee and on being informed about the problem it was asked to address exclaimed: “The solution is easy – abolish the Fund!” That "solution" is not however within its terms of reference.

Fund to borrow in the markets?

One less drastic but still controversial option that the committee will presumably look into is the possibility of the Fund borrowing from private markets. This has always been an attractive means of supplementing resources in time of need and is permitted by its articles, unlike many other ingenious ways of raising money that are suggested from time to time. What with the collapse of official financing, other options may indeed be limited.

page top^

Indonesia sees off IMF

The IMF is to lose another yet borrowing customer as Indonesia gets ready to repay its outstanding debt of $7.51 billion by this December, well ahead of schedule. Burhanuddin Abdullah, governor of Bank Indonesia, said that it was possible to settle the entire debt this year, as the country’s foreign exchange reserves were adequate to finance this. Indonesia’s foreign exchange reserve rose to $44.169 billion in May.

page top^

Volcker criticises US foreign policy

Former chairman of the Federal Reserve Paul Volcker has said US policy abroad is too abrasive. Paul Volcker served as chairman of the Federal Reserve Board from 1979 to 1987 under Presidents Jimmy Carter and Ronald Regan. He spoke at Brown University and said the US once led more by example than by force.

On the economic front, Volcker said he was worried that Americans were spending about seven percent more than the country produced. He said spending at that level was probably unsustainable.

page top^

Issing departs with warnings to the ECB -

Outgoing ECB chief economist Otmar Issing said his parting message to his ECB colleagues was to get to grips with inflation. “Don’t let the inflation monster out of the pickle jar where we’ve imprisoned it,” said Issing, 70, in an interview with Bloomberg at the ECB on his last day at the bank.

Issing told the newswire he plans to be a “silent observer” of monetary policy from now on. He mentioned also that while cleaning out his office, Issing unearthed a T-shirt given to him by a colleague bearing the slogan:
“You Are Looking at the Best Inflation Fighter in the Universe.’

- and to the euro area members

Before departing, Otmar Issing also warned against “tensions” in the European monetary union, according to an interview published in Handelsblatt on 29 May.

“Some of the member states have lost their competitive edge due to the continued rise in unit labour costs, and have thereby landed in a difficult situation,” Issing said.
“These countries must do something to change their course, or it could result in great tensions,” he said.

Is this the first time the ECB has admitted that the growing divergencies within the eurozone could pose dangers for the union itself?

page top^

Stark gets economics

As expected, the ECB has split the management roles for the divisions of economics and research, both previously held by Otmar Issing. It was necessary for Trichet to distribute managerial roles more evenly across the board and encourage a more collegial style of management and decision-making. As it turns out, the new executive board member Jurgen Stark has been given the task of managing the economics division, while vice-president Lucas Papademos takes charge of research.

Attention now turns to the implications that the post-Issing reshuffle will have on the ECB operations and its decision-making process. There have been some concerns that splitting the economics and research departments’ management would result in the latter losing influence on and input to policymaking. Papademos allayed these fears by saying that the research department has already been told “to focus more on policy related issues” which looks like a formula for competing with economics. Splitting Issing’s former roles, he added, would “not imply in any way that the co-ordination of activities and co-operation will be affected”. But a third person with a bigger input into policy making in the post-Issing era will be Gertrude Tumpel-Gugerell, who is responsible for market infrastructure. The exact distribution of duties will be as follows:

* Jean-Claude Trichet – Communications; Internal Audit; Secretariat and Language Services.

* Lucas D. Papademos– Financial Stability and Supervision; Research.

* Gertrude Tumpel-Gugerell – Human Resources, Budget and Organisation; Payment Systems and Market Infrastructure.

* José Manuel González-Páramo – Banknotes; Market Operations; Statistics.

* Lorenzo Bini Smaghi – Administration; International and European Relations; Legal Services.

* Jürgen Stark – Economics; Information Systems

page top^

Everybody wants to meet Trichet

Joaquin Almunia, the EU commissioner for monetary affairs and Jean-Claude Juncker, chairman of the Euro-zone finance ministers have written to Jean-Claude Trichet requesting regular meetings between the three men. The agenda would include, but not be limited to, exchange and interest rates. At present Trichet attends most of the meetings of the Juncker group while Almunia is allowed into ECB governors board gatherings, so Trichet may question the need for yet further meetings. Watch this space.

page top^

Akinari Horii replaces Eiji Hirano

Akinari Horii, director-general at the BOJ’s international department, is to be an executive director in charge of international affairs, replacing Eiji Hirano, who has completed his four-year term. Horii will also serve as the head of the international department for the time being.

page top^

Competition among financial centres in the Middle East - Dubai

Umayya Toukan, governor of Jordan Central Bank, and the Chairman of Dubai Financial Services Authority, Habib Al Mulla, have met in Amman to discuss the progress of the Dubai Financial Services Authority, and its emerging role as a benchmark for financial regulation in the Middle East. Dr. Al Mulla said:
‘The Dubai Financial Services Authority seeks to enhance relations with the leaders of the region’s financial community - to gather insights and explore areas of common interest that will sustain the authority’s commitment to best practice.”

page top^

- and Qatar

Lord Woolf, formerly Lord Chief Justice in the UK, is to be the senior judge for Qatar’s new financial centre. He will become the first president of the Qatar Financial Centre (QFC) Tribunal, which he will help establish, and he will preside over cases involving the laws of the QFC. The QFC, which was set up in May 2005 in an attempt to build Qatar as a serious financial centre, will operate under common law, and consists of the QFC authority, which promotes the centre, the regulatory authority (QFCRA), the Tribunal and an appeals body.

Philip Thorpe, the former managing director of the UK FSA who now chairs the QFCRA, spoke at a press conference on Monday 22 to announce Lord Woolf’s appointment. He emphasised that the appointment demonstrated the QFC’s commitment to independence from political interference, the lack of which has plagued other Middle Eastern financial centres. Lord Woolf will have a five-year term of office, and there is no scope for him to be removed by politicians before his term is complete.

page top^

Wolf surprised

Lord Woolf said that on first being approached for the post, he was surprised, both because he was of a foreign nationality and because he is Jewish. He said that the decision to hire him was significant and demonstrated the QFC’s commitment to the rule of law, which he viewed as essential for the centre to prosper.

page top^

PBOC broadens investment portfolio

China should consider broadening its investment channels and introduce more investment products to absorb rising liquidity in the banking sector, central bank governor Zhou Xiaochuan said in a Securities Times report. China’s high savings ratio, the foreign capital inflow and the growth of the country’s financial sector has led to increasing liquidity in the banking system. At the end of April, China’s M2 money supply rose 18.9% year-on-year to 31.37 trillion yuan, compared to an 18.8% growth rate recorded at end-March.

Introducing more investment products will also provide an opportunity for China to develop its capital markets, and especially its stock market, Zhou said. China will continue to encourage the participation of institutional investors in the capital market and introduce more foreign institutional investors while maintaining its gradual approach to capital account convertibility, he added.

page top^

Central bank to manage oil money

Russia’s central bank is to manage the state’s fund of oil profits, the Russian minister of finance, Alexey Kudrin, has announced. Russian Information Agency Novosti reported that the government has built up an estimated $80 billion from profits of state-owned oil companies known as the “stabilisation fund”. This fund will be placed at the central bank with a currency allocation of 45% in dollars, 45% in euros and 10% in sterling, Kudrin said during a lecture at the School of Advanced Economics in Moscow on Wednesday.

“On Monday I signed all the acts in relation to the placement of the fund, and this has been approved by the government of Russian Federation,” he added. Under this arrangement, the central bank will manage the funds and pay the government a rate of interest. “The central bank will pay the Ministry of Finance interest at a rate determined by an index of securities chosen by the government,” Kudrin said.

page top^

Tulin quits CBR

Dmitry Tulin, a deputy chairman at the Central Bank of Russia, will leave his post on 1 February and join auditing company Deloitte and Touche. Tulin has been deputy chairman of the central bank since April 2004. His competences include supervision of activities of crediting organisations. Between 1994 and 1996, Tulin worked in Washington in capacity of Director of the IMF for Russia. And between 1999 and 2004 he was senior advisor of the EBRD.

page top^

EMEAP reserves move

The central banks of EMEAP may invest more of their reserves in government bonds and debt instruments issued by other countries of the region following the annual Executives’ Meeting of East and Asia-Pacific (EMEAP) central banks which was held 26–29 May in the South Island of New Zealand. All 11 members of EMEAP – New Zealand, Australia, Japan, China, South Korea, HongKong, Singapore, Malaysia, Indonesia, Thailand and the Philippines – attended the meeting. The governors completed a review of the bond markets of the region including measures to make it easier for Asian central banks to buy each others’ debt for their reserves

page top^

Blanchflower for the UK MPC

On May 30, the UK’s parliamentary Treasury Select Committee endorsed American economist David Blanchflower’s appointment to the Bank of England’s Monetary Policy Committee.

“We are satisfied that Professor Blanchflower fulfils our criteria for appointment of personal independence and professional competence,” said the committee’s report.

page top^

No stranger to Britain?

To those in Britain who think it a mite odd that Chancellor of the Exchequer Gordon Brown should keep looking longingly across the Atlantic for economic expertise, it must be said that Blanchflower, who is an economics professor at Dartmouth College in New Hampshire, has dual US and UK nationality. True, he has lived in the US for the last 17 years. True, he has accepted the BoE offer on condition that he can continue working at the university. True, he says that he “needs to know more about financial markets”. True, finally, that he is not exactly renowned as a monetary economist. He will, however, fly to the UK once a month and stay for around 12 days to fulfil his MPC duties.

Well, well. The next thing we’ll be told is that the UK MPC is to hold a meeting in, say, Washington, to show its commitment to globalisation or some such twaddle.

The episode has naturally revived criticism of the controversial appointment process. Blanchflower’s name is reported not to have been on list of candidate the central bank passed on to Gordon Brown, who appoints seven of the nine MPC members. Certainly the decision seems to have been “sprung” on the Bank of England at the last moment. On the whole, however, committee members, who have in the past given new MPC members a thorough grilling, were remarkably gentle on a man whose appointment has been described by some as the “worst received nomination in the MPC’s nine-year history”.

The Treasury remains under pressure to name a replacement for Richard Lambert, whose own appointment was controversial on the grounds that Richard is no economist. The position has been vacant for months and months. The widely-read columnist Christopher Fildes has already applied, on the grounds that there is obviously now a vacancy for an experienced financial journalist who knows his way round the City’s markets.

“I shall be at the Chancellor’s disposal, just as soon as he makes up his mind” wrote Fildes in the Evening Standard.

page top^

page top^

page top^