Congratulations, Boss!

Once again, for five consecutive times, Global Finance has given Grade A to the Governor of the Central Bank of Malaysia (Bank Negara Malaysia) in its annual Central Bank Report Card. What make me even prouder is that (Y. Bhg. Tan Sri Dato' Sri) Dr. Zeti Akhtar Aziz's counterparts in the United Kingdom and the United States of America were graded D and C, respectively. The excerpt below was taken from the Global Finance Central Bank Report Card 2007.

Once again, well done Dr. Zeti! You make us proud as always.

MALAYSIA

ZETI AKHTAR AZIZ

Grade: A

Malaysia seems to have successfully weathered this year’s global and regional financial turmoil, and, as usual, central banker Zeti Akhtar Aziz’s even-handed management of monetary policy has helped. Unfazed by both the Asian crisis early this year and the spillover from the US subprime crisis, Zeti has kept interest rates steady at 3.5% since last April. By effectively doing nothing for the past year or so, the central bank has been extremely effective. Malaysia’s economy is on a roll, with GDP growth for 2007 on track to almost match last year’s 6% while inflation is tame, dropping in the second quarter this year to 1.5%—its lowest level since late 2004. Meanwhile, the ringgit has been gradually appreciating in real terms against the dollar, something that observers generally agree is good for the health of the economy. The one dark cloud for the economy is that demand for its electronics output is tailing off, but Malaysia’s financial services industry is taking up the slack. Heavily promoted by Zeti, Malaysia’s Islamic finance industry is playing a crucial role in that process.

UNITED KINGDOM

MERVYN KING

Grade: D

This past couple of months have been tough on Mervyn King, the UK’s now-beleaguered central banker. In September, just days after he pledged not to bail out banks that were caught in the credit crunch, he had to do just that for floundering Northern Rock. King had no choice because the Bank of England is mandated to help in such situations, but the debacle made him look terrible. That embarrassment paled by comparison, though, to the humiliation King had to endure a week later when he appeared to cave in to political pressure to ease borrowing requirements for troubled banks in the UK. Volatile market conditions had also forced the central bank to hold interest rates steady at its August and September meetings, despite its hinting earlier in the year that it would want to raise them. The only consolation for King is that inflation seems to be edging back down from its recent 3% spike to the bank’s 2% target. GDP growth, meanwhile, is faltering as high rates and the credit crunch bite. As Global Finance was going to press, King was facing increasing pressure to resign. If he does, his successor will have to not only restore balance to the economy but also restore the bank’s credibility.

UNITED STATES

BEN BERNANKE

GRADE: C

In this summer’s subprime mortgage meltdown, Ben Bernanke faced his first real challenge as US central banker. Unfortunately, his response was somewhat feeble. As America’s financial system seemed to teeter on the brink of disaster, Bernanke vanished from view. Then, from his bunker, he squirted a dose of liquidity into the markets. Sadly, if he was hoping to reassure troubled markets by pumping in liquidity, then he was sorely mistaken: All he did was assure jumpy investors that there must be something very, very wrong that they didn’t yet know about. When he cut rates by half a percentage point in September, he appeared to be reacting to short-term market pressure rather than instituting long-term monetary policy. It was a disappointing performance from a central banker who had hitherto shown himself to be a more-than-worthy successor to Alan Greenspan—who, incidentally, has reemerged into the limelight to assert that a recession is looming. The problem is, Greenspan might be right. The subprime mess could still derail the US economy, and there will be very little the central bank can do about it—even if it wanted to. In Bernanke’s favor is the fact that, while signs of a slowdown abound, the US economy is still growing at an acceptable pace. GDP year-on-year growth was revised upward to 4% in the second quarter of 2007, while inflation appears to be moderating…for now, at least.