CENTRAL BANKER REPORT CARDS 2005

Global Finance, Oct 2005 by Platt, Gordon, Hawser, Anita, Bamrud, Joachim

After enjoying a couple of relatively peaceful years the world's central bankers suddenly found themselves with a lot more work on their hands. Over the past year they've faced some unexpected challenges. Few central bankers would have predicted, for example, that oil prices would double and that other commodities would see sharp price rises, too.

For those in commodity-exporting nations, the rising prices are both a boon and a handicap. Certainly, the extra cash flooding in brings many benefits. Chile's Vittorio Corbo has watched happily as the recent jump in copper prices has pumped up his country's economic growth. At the same time, though, he has to contend with the conseguences, including rising inflation.

Indonesia's Burhanuddin Abdullah has an even more daunting task. His country has become a net importer of oil, so higher prices are making a substantial dent in the country's finances. The fact that Indonesia's government is committed to keeping fuel prices low through subsidies only adds to his woes.

The gyrations in the value of the dollar have also taken some by surprise. Having settled into a steady, gentle slide last year, the greenback staged a remarkable recovery over the first half of this year. Many central banks had been quietly adjusting their reserves to reduce their exposure to the dollar, and the recent turnaround has left them wondering if they might have moved too far, too fast.

Unexpected events such as these really test the mettle of a central banker, and it is how they respond that marks out the great from the merely competent. Being a successful central banker in a benign economic environment takes far less skill, resolve and courage than it does when times get rough. Hearteningly, the majority of this year's crop seem to be coping well with the challenges they've faced.

And after a couple of years in which he seemed to have lost his magic touch, the most well-known central banker of all, Alan Greenspan, seems to be getting back in form. In February, for example, he mused that low bond yieldswere a "conundrum." Within a week, yields were rising. It appears that Greenspan's ability to move markets has returned. Some are concerned, however, that he might be maintaining his tightening bias for too long, risking another bumpy landing for the economy.

Contributors: Gordon Platt, Anita Hawser and Joachim Bamrud. Edited by Dan Keeler.

THE AMERICANS

ARGENTIMA

MARTIN REDRADO

GRADE: D

Martin Redrado has had his hands full since taking over at Argentina's central bank in a surprise appointment in September 2004. Redrado, a former deputy foreign minister, has had to fight rising inflation as government expenditures have grown. Inflation is likely to reach 7.7% this year, up from last year's rate of 4.4%. Meanwhile, GDP will likely grow by 6%, down from the 9% growth of last year. Redrado has made some noise about reining in government expenditure, but his hopes of making a difference are slim. Although Redrado's predecessor, Alfonso Pratt-Gay, lasted longer in the job than many previous central bankers, his demise, after less than two years, was allegedly the result of a disagreement with President Nestor Kirchner over economic policy. Redrado will have to be very careful if he is to avoid the same fate. Despite his claims that the central bank is independent of the government, many local economists and investors view the central bank as too weak to efficiently fight inflation. Few consider the frequent changes in leadership at the central bank as anything other than politically motivated and another indication that the central bank is a Kirchner puppet. Redrado will have his work cut out if he wants to restore confidence in his organization. Of course, if he does, he'll probably suffer the same fate as his predecessors.

BRAZIL

HENRIQUE DE CAMPOS MEIRELLES

GRADE: B

In no small irony, Brazil's top banker has survived yet another year, despite allegations last year that he may have evaded taxes and engaged in irregular forex transactions. Nevertheless, President Luiz Imcio "LuIa" da Suva decided to keep him on in a wise move, and today the charges against Henrique de Campos Meirelles appear among the least of LuIa's problems, as a number of his closest aides have had to resign over direct corruption charges. But the current scandal has put pressure on Meirelles to keep inflation down, a job he has managed quite well. This year inflation will likely fall to 5.4%-an improvement from last year's 6.6%, although higher than the official target of 5.1%. Meanwhile, GDP will expand by 3.4%, much less than the growth of last year, but only slightly lower than the early forecasts from the central bank. Unlike its neighbor in Argentina, Brazil has managed to keep the central bank strong and well respected. Meirelles thus gets to keep his B grade yet another year.

CANADA

DAVID DODGE

GRADE: C

Canada's central bank governor is still showing a tendency to be a little trigger-happy. Last fall David Dodge was pushing interest rates up, seemingly unaware of the impact a stronger Canadian dollar would have on exports. Now he's eased off, but GDP growth estimates have had to be revised downward from 2.9% to 2.8%. He's far from out of the woods, too, as rising oil prices are now threatening to further strengthen the Canadian dollar. In August the "loonie" reached an eight-month peak against the US dollar, causing some to speculate that it could reach parity with the greenback. So far the impact of a strong loonie on net exports has been balanced by an increase in domestic demand, but that could change. Nevertheless, Dodge's penchant for inflation targeting has paid off in terms of delivering sustainable economic growth.