The central bank’s president, Richard Webb, tired of fighting with the bank’s board, resigned early last month, and Peruvian President Alejandro Toledo refused to act on his resignation.
Finally, on July 25, Toledo reshuffled his cabinet, moving Economy and Finance minister Javier Silva Ruete to the central bank and shifting Energy and Mines minister Jaime Quijandría to Finance. The president hopes that these moves -- along with having earlier named a new prime minister, Beatriz Merino, with a reputation for honesty and hard work -- will bolster his sagging government. He is under pressure to create jobs and combat a renewed outbreak of terrorism.
Market analysts reacted calmly. The new central bank president “is very responsible on the fiscal front and has enough experience and character to say no,” says José Gonzales, managing director of emerging-markets specialists LW Asset Management in New York. During his one-year stint as Finance minister, Silva Ruete, 68, held down spending and kept the economy stable. The 60-year-old Quijandría, meanwhile, acquitted himself well at the Energy post.
The political tumult contrasts with Peru’s solid macroeconomic performance. Inflation is low, interest rates are falling, and the economy is chugging along at a 5 percent growth rate, the best in Latin America.
But the stable monetary indicators don’t extend to the central bank’s internal politics. In a postresignation interview with Institutional Investor, Webb complained that four of Toledo’s seven appointees to the bank board pushed what he characterized as “heterodox” economic ideas. One, Daniel Schydlowsky, former economic adviser to leftist former president Alan García, advocates publicly funded financial trusts to expand the money supply, which would boost debt.
The sharpest conflicts, though, centered on bank administration. The Toledo appointees “went to war with people I relied on,” says Webb, firing general manager Henry Barclay and two of the bank president’s close advisers. Webb bitterly adds that textile magnate Carlos Castro, who had been installed by Toledo as the central bank’s vice president, tried to micromanage it like a business, even challenging the purchase of back-up computers to protect the records of the national payments system (as the International Monetary Fund has strongly recommended).
“What’s happened is very ugly,” says Jorge Chávez, a former central bank president and the head of Lima consulting firm Maximixe. “It’s a type of conspiracy --they are seeking to progressively dominate the bank’s apparatus.”
Webb, a Peruvian of British descent with a Harvard Ph.D. in economics, has said little in public about the disputes because, he explains, he doesn’t want to add his voice to the cacophony emanating from the central bank. And he says he put off resigning “in the hope that Toledo would manage the dispute with a minimum of publicity. Instead, he maximized the noise.”
Now a strong economic administrator has been installed at the bank. Moreover, says José Cerritelli, a Latin America analyst at Bear Stearns, Silva Ruete “is more flexible than Webb on economic policy because he’s more political and goes along with a much wider range of policy and political ideas.” Still, will Silva Ruete be any better able to stand up to the board?
