Colombia’s central bank, pressured
by President Alvaro Uribe over the past year to lower rates,
will have a board composed almost entirely of his appointees
when he fills two more seats by the end of this month.
The new board could be the first with five directors on
the seven-member panel appointed by the same president. The
unprecedented situation arose because Uribe is Colombia’s
first president to serve two consecutive terms since Simon
Bolivar, who took Colombia from the Spanish in 1819.
The prospect of a board loaded with Uribe’s choices raises
concerns among economists and former board members that the
bank’s independence could be seen as compromised. A politically
packed body may ignore its mandate to contain inflation and
focus instead on trying to stimulate growth, said Felipe
Campos, an economist at Bogota-based brokerage Alianza Valores.
“The board hasn’t had to choose between stimulating the
economy and controlling inflation under Uribe, but they may
face that dilemma in 2010,” Campos said. “This opens a window
for the central bank’s independence to be questioned.”
Uribe, who got congress to change the constitution in 2004
to allow presidents to serve back-to-back, four-year terms,
said last year that monetary policy was too restrictive and a
drag on the economy.
Both Central Bank Chief Jose Dario Uribe and Director
Fernando Tenjo declined to comment when asked about the coming
changes and said they have no information about the decision.
The bank’s seven policy makers, who set the overnight rate
at which commercial banks can borrow, include the finance
minister, five co-directors appointed by the president, and a
general director elected by the other members every four years.
In 2005, during his first term, Uribe named Carlos Gustavo Cano
and Juan Mario Laserna to the board. He appointed Juan Jose
Echavarria in 2003 to replace a member who quit.
Uribe will name a new board member to replace Leonardo
Villar, who has served the maximum 12 years. He also will
replace another board member of his choice by the end of
February. Each president is permitted under the constitution to
select two of the five independent board members during his
term.
“My worry is that he appoints people who believe fighting
inflation is a secondary concern,” said Alberto Ramos, a Latin
America economist at Goldman Sachs Group Inc. in New York.
“The central bank’s primary objective isn’t making the economy
grow. Let’s hope he understands the market’s concern.”
The bank, founded in 1823, has been independent under the
constitution since 1991, when it was given the mission of
fighting inflation. Its separation from the president was
ensured by granting the country’s leader power to appoint only
three board members, including the finance minister, unless one
leaves the council for some reason.
Salomon Kalmanovitz, a former central banker who stepped
down in 2005 after serving out his 12-year term, said “the
balance of powers was destroyed” when Uribe was able to win a
consecutive second term. A constitutional amendment would be
needed to modify the rules regarding the board’s term and
election, he said.
The appointed board members’ reputation is on the line,
said Kalmanovitz, who’s now dean of economics at Universidad
Jorge Tadeo Lozano in Bogota.
“The acid test will be when the board is faced with an
economic environment where it has to apply a tourniquet to the
economy,” he said. “Then we’ll know if the new members are
independent.”
Even so, economists such as Alberto Bernal, head of
emerging-market research at Bulltick Capital Markets in Miami,
say the quality of the appointees is more important than who
makes the selection.
“I don’t care about the members’ political stance, but I
do care about their flawless academic record and their strong
personality,” Bernal said. “Being a central banker is an
academic issue, it’s technical.”
The government says the bank has shown its independence in
the past, even when Uribe made repeated, public calls for rate
cuts.
“The nomination will be made in accordance with what the
government thinks is the best,” Finance Minister Oscar Ivan
Zuluaga said in an interview Jan. 26. “The central bank board
has proved that it acts independently. The institution of the
central bank is very strong.”
The central bank raised the benchmark lending rate 16
times from mid-2006 through July in a bid to stem inflation,
which reached 7.7 percent in 2008, the highest end-of-year rate
since 2000, and above the target range of 3.5 percent to 4.5
percent.
The bank’s policy of tightening rates discouraged
borrowing and curbed consumer spending after two years of
growth above 5 percent. Colombia also benefited from a
reduction in violence related to drug-funded rebels since Uribe
became president, helping push economic growth in 2007 to its
fastest in three decades.
That growth has slowed as the global economic crisis
crimps bank lending further. The government forecasts economic
growth this year of 3 percent, down from 8 percent in 2007.
Zuluaga, President Uribe’s representative on the board, is
now asking the bank to continue cutting the rate to stabilize
economic growth after the president publicly said it should pay
more attention to the public when deciding interest rates.
“Despite the independence the constitution gives it, the
bank also has to listen to the people,” President Uribe said
in July. In September he said “persistent” high interest
rates would damage the economy.
Colombia’s central bank on Dec. 19 became the first Latin
American bank to reduce its lending rate amid the global
financial crisis, cutting it by half a point to 9.5 percent. On
Jan. 30 the bank cut the rate another half point to 9 percent.