The right stuff

PUBLISHED : Wednesday, 23 April, 2008, 12:00am
UPDATED : Wednesday, 23 April, 2008, 12:00am

With Silvio Berlusconi's recent return as prime minister of Italy, and Nicolas Sarkozy's victory in the French presidential election a year ago, Europe now has two leaders who would dearly love to get their hands on the European Central Bank so as to manipulate monetary policy for their own parochial purposes. For them, a burst of monetary relaxation would be a splendid means of stimulating their home economies, while postponing attention to deep-seated structural problems such as budget deficits or rigid labour markets. Never mind the longer-term damage which all of Europe would suffer if inflation - which would be an inevitable consequence of such a splurge - were allowed to take hold again.

Fortunately for the rest of Europe, however, the ECB has a strong foundation of independence, enshrined in treaty and statute. It is prohibited from either seeking or taking instructions from other bodies, least of all from politicians or governments.

That is in stark contrast to Hong Kong. The head of our central bank - the Monetary Authority - is appointed by the financial secretary, and his activities are under the ultimate control of the finance chief. A few years ago, HKMA chief Joseph Yam Chi-kwong did, to his credit, negotiate a document with the financial secretary which delineated their respective responsibilities. But the financial secretary could, in theory, tear that up and issue new instructions tomorrow. In practice, that would be unlikely unless, at the very least, it carried the blessing of the Exchange Fund Advisory Committee. But when one reflects that the committee is stacked with successive financial secretaries' own appointees, one realises how vulnerable monetary policy could be to political interference.

Mr Yam is resolutely apolitical; he has expertise as a monetary economist which outstrips that of anyone in government; and he enjoys a high international standing. These attributes have enabled him to see off occasional pressure for short-term, politically expedient palliatives that could have stored up long-term trouble - such as prematurely altering the exchange rate peg or allowing banks to lend overgenerously to homebuyers.

Now that Mr Yam is said to be in the twilight of his tenure, who should succeed him? Many observers presume that a successor has already been anointed. Be that as it may, let us consider what qualities are desirable. Four in particular stand out.

The first is expertise in monetary economics - ideally to a level that is recognised and respected internationally. This is especially important because the next HKMA chief may seriously have to contemplate changes to Hong Kong's currency arrangements, as the yuan moves closer to full convertibility and the two economies converge. It is noteworthy that many central banks - in the United States, Britain, Italy, Mexico and Australia, to name but a few - are headed by men who are distinguished economists in their own right. Regrettably, however, there is no obvious candidate of that ilk in Hong Kong.

The second need is banking expertise, especially given possible longer-term repercussions of the banking problems which currently beset much of the world. In this context, the job description could usefully include time served as a practising banker. To poach a real banker, possessing the right mix of experience and vision, would be to bring a breath of fresh air to the debates on regulatory policies or financial sector evolution, both locally and internationally.

The third requisite is leadership. This is not only a matter of being able to run successfully an organisation of 600-plus staff, but also to represent Hong Kong's interests effectively in negotiations with the mainland authorities and in many wider international forums.

The fourth requirement is political detachment. The ECB is no isolated example. Almost every reputable central bank has had a degree of statutory insulation from the politicians conferred upon it. This was, in many cases, a reaction to the disastrous consequences of governments calling on their central banks to print money to fund budget deficits, or insisting on credit strategies to support favoured sectors or cronies. Absent any such formal insulation in Hong Kong, the HKMA chief must be seen to be free of political baggage, and must have sufficient independence of intellect and spirit to be able to stand firm against political meddling and against the pressures from vested interests which may be transmitted via government leaders.

There is unlikely be a single person who fully satisfies all the requirements. But the judicious selection of a deputy could ensure that all bases are adequately covered, particularly if the way is still open to import technical expertise at that level, should the need arise. However, the one attribute which the top man must himself possess, and which should not be fudged, is that of political detachment.

Tony Latter is a former deputy chief executive of the Hong Kong Monetary Authority


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The right stuff

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