Liu Mingkang, Chairman, China Banking
Chinas top bank regulator has spent years cleaning
up the system and repairing the nations financial health.
Today, his risk management philosophy is being put to the
Its hard to imagine Liu Mingkang ever having
been under such intense scrutiny. The chairman of the China
Banking Regulatory Commission (CBRC) used to help run the
countrys central bank and chaired two of its biggest
financial institutions. But the record pace of Chinese loan
growth in the first half of 2009 has thrust him squarely into
Chinas state-controlled banks completed a
years worth of lending in the first three and a half
months of the year, based on last years central bank-set
loan quota, as the government leaned on the banking system to
support its record Rmb4 trillion ($586 billion) stimulus
The explosion of new credit puts Liu and the CBRC
under intense pressure to protect the sector from an almost
inevitable rise in bad debt at the same time avoiding
measures that could threaten to derail Chinas economic
The scale of the challenge is hardly lost on Liu,
who took charge of the CBRC in March 2003. Indeed, the former
banker has long been aware of the risks, and has spent the
better part of a decade trying to put Chinas banking
sector right. Its partly down to Lius efforts
cleaning up legacy bad debt, cracking down on corruption
and vigorously pursuing a risk-based regulatory agenda
that Chinas banks are today in a position to implement
Weve got to raise our vigilance against
possible risks credit risks, operational risks, market
risks and strategic risks, he told Emerging Markets in an
interview in 2005. This is a long and historic mission,
and we know how.
Liu has always taken a broad view of his
responsibility, sketching what he sees as the distinctive
aspects of Chinas regulatory philosophy.
Profitability today can never mean anything in the long
run, he said. Youve got to know where you are
and where youre heading. In China, harmony in development
of the whole society is important.
He has set about more recently trying to hammer
home the importance of solid risk management. This year,
with the rapid expansion in credit, the range of risks in the
banking sector is on the rise, Liu said last month.
Financial institutions should always stick to the bottom
line of compliance management, in order to lay a solid
foundation for risk management, he continued, calling for
banks to strengthen their internal compliance measures with
professional, scientific approaches.
That warning was only the latest in a series of
measures designed to keep Chinas banking system in check.
Liu and the CBRC have clamped down on lending to speculative
investment, and more recent measures announced in August will
limit the amount of regulatory capital that a bank can carry in
the form of subordinated bonds.
Measures such as these paint Liu as an increasingly
sophisticated regulator, and he has won praise from
international observers for his focus on risk. The record
bank lending is not sustainable, and the authorities were
correct to slow down the pace and sound some notes of
concern, says Stephen Roach, Morgan Stanleys Asia
The inherent conflict of interests in Chinas
centrally-controlled financial system, where the government is
the biggest shareholder and sole policy-maker, present an
obvious challenge for its top regulator. But its a task
that Liu elevated this year to the Communist
partys central committee is perhaps best placed to
tackle. Steve Garton
Yi Gang, Administrator, State Administration of
Foreign Exchange, Peoples Republic of China
Yi has his work cut out for him: Safe, which oversees
Chinas $2.1 trillion foreign exchange reserves, is one of
the most crucial and closely watched cogs in the
worlds financial machinery
Chinas foreign reserves keep on climbing. In
the first six months of this year, they increased by another
$185 billion to reach $2.13 trillion the worlds
largest stockpile of foreign exchange, and an unprecedented war
chest for what is still basically a poor country.
The one-way accumulation of reserves, combined with
the non-convertibility of its own currency, means that
Chinas State Administration of Foreign Exchange (Safe)
has become one of the most important levers in the global
financial architecture; the other in the new G20
world order is the indebted US Treasury.
Safe appointed a new chief in July Yi Gang,
a former deputy governor of the Peoples Bank of China,
which oversees Safes activities. Yis job carries
enormous responsibilities and makes him a serious player in
global capital markets, especially in US Treasuries, but also
increasingly in the equity markets.
Some 15% of Chinas reserves have gone into
equities since Safe started diversifying into stock markets
early in 2007 partly in an attempt to compete with the
newly founded China Investment Corp (CIC), which is under the
finance ministry. The portfolio has shed half its value in that
Safe is also the domestic regulator of foreign
exchange transactions, making it the key arbiter of
Chinas attempts to control money coming in and out of the
country while also attempting to make its currency available
for international trade settlement, with the long-term goal
though many analysts believe it will be very long term
of making the renminbi convertible.
Historically, Safes performance has been
steady. But it has lost money recently, most notably in the
collapse of Washington Mutual. Earlier this year, it agreed to
invest up to $2.5 billion in TPGs $7 billion rescue of
the troubled US lender. It was the largest commitment ever made
to a private equity firm by a sovereign wealth fund.
Yi is also at the centre of the political question
of why China continues to keep a vast stockpile of foreign
reserves rather than spending money on raising living standards
across the country.
But as Peoples Bank of China governor Zhou
Xiaochuan admitted in an interview with Emerging Markets last
year, the rate of growth in Chinas foreign exchange
reserves is unsustainable, but the country cannot significantly
change its policy because of uncertainties in the global
economy. I should say that [the current rate of foreign
exchange accumulation] is not desirable because the government
already admits that they want to have better balance of
payments, Zhou said.
Be he also reiterated Chinas avowed position
since it first embarked on reforming its currency regime,
namely that China would continue to increase exchange rate
flexibility, in line with its long-stated principles.
Going back to 2005, at the time we mentioned three
principles for reform of the exchange rate, Zhou said.
One is that there is independent decision-making, the
other is gradualism and the third is keeping it in a controlled
range not to allow it to get out of control.
Another pressing concern for Yi and Zhou is the
fate of the US dollar, which has weakened to multi-month lows
against a broad range of currencies, including the euro and the
Policy-makers in China are concerned about the
widening fiscal deficits in the US as well as the aggressive
monetary stimulus by the Federal Reserve, which could generate
inflation and downward pressure on the greenback. That in turn
would put the value of Chinas massive dollar-denominated
asset holdings, including more than $800 billion in Treasuries,
at risk of depreciation.
Earlier this year economist Brad Setser, now at the
US National Economic Council, pointed out another downside to
Chinas foreign exchange reserve accumulation: The
difficulty for China is that it has never explained to its own
population that buying dollars to keep your exchange rate down
means that you are going to lose money.
China ought to be less worried about
inflation in the US devaluing the dollar and more concerned
about currency losses if the US becomes a less friendly export
market. Nick Parsons
Zhou Xiaochuan, Governor, Peoples Bank of
The Peoples Bank governor is chief banker to the
US government and monetary policy-maker for a nation of 1.3
Few people on the planet have a job as enviable yet
as daunting as Zhou Xiaochuan. The 61-year-old governor of the
Peoples Bank of China, the countrys central bank,
holds a position of genuine global heft potentially as
influential as chairman of the US Federal Reserve or president
of the European Central Bank.
Zhou has overseen the countrys foreign
reserves since 2002, which now stand at roughly $2.1 trillion.
That bald number alone makes the Peoples Bank the largest
single public financial institution in history.
Over the past 30 years China has made enormous
strides, nowhere more than in its ability to manage its own
finances and more importantly enmesh the
financial and economic fortunes of a rising superpower with the
rest of a troubled world.
Just a few decades back, China seemingly had no
need for a central bank governor. Chairman Mao scrapped the
position when he imposed the decade-long Cultural Revolution on
the country in 1966. The position remained unfilled for more
than seven years.
These days, Chinas central bank governor is
as central to the global flow of capital as the US dollar, the
Dow Jones Industrial Average, or the over-the-counter
derivatives market. In 2005, Zhou joined the influential
Washington-based body, the Group of 30, chaired by the former
US Fed chairman Paul Volcker. The group studies the economic
consequences of decisions affecting exchange rates, the
international capital markets, and a vast array of
macroeconomic and financial issues.
Zhou spends every day not just thinking about these
issues, but acting on his decisions. As the global economic
crisis spread in 2008, nearly destroying the fabric of the
worlds financial system, Zhou was quick to berate,
cajole, direct, and most importantly act.
In early 2009 he called for a basket of currencies
to replace the US dollar as the worlds reserve currency,
shaking world markets. Rattled by the underlying weakness of
the dollar in recent years, China is vying to reduce its
dependence on the US currency.
The country also moved secretly to increase its
gold reserves, largely by ramping up domestic production of the
metal. Chinas gold reserves have reportedly more than
doubled since the start of 2006 to more than 1,000 tonnes.
Meanwhile, the country has shown ever-greater
desire to interact with global markets, with Zhou often
spearheading the process. During 2009 China rolled out the
first-ever sale of yuan-denominated government bonds outside
the mainland. In July, Beijing sold Rmb6 billion ($880 million)
in bonds in Hong Kong, largely, Chinese officials said, to
improve the status of Chinas currency.
Chinas willingness to test out new economic
models doesnt mean the central bank is ready to flex its
muscles fully on the global stage. Despite the presence of its
vast wealth, Beijings financial power remains to a great
extent that of a paper tiger. Chinas financial system
lacks heft and finesse; its consumers are fearful of spending;
local corporates remain overly dependent on the sloughing
Thus Zhou has consistently made it clear in
the face of determined and continued criticism from Washington,
particularly under the Bush administration that China
will not let the yuan float any time soon; rather, China
remains committed to a gradual shift in the exchange rate.
His subordinates confirm his position. This
September, Guo Qingping assistant governor at the Peoples
Bank, said the yuan had a long way to go before it could be
considered a global currency, noting that the country was
cautious about the concept of an international yuan.
No one could accuse Guos boss of lacking the
nous, the stamina or the dark arts involved in managing a
countrys finances. As the controller of the worlds
largest-ever national kitty, Zhous impact is hard to
overstate. When we observe that China can absorb the
impact of exchange rate flexibility, then we will enlarge
it, he told Emerging Markets last year.
Ho Ching, Chief Executive, Temasek
Singapores state-owned investment giant
represents Asian capitals westward migration like few
Temasek, founded in 1974 with the Singapore
government seeding of 35 company holdings from a detergent
maker to a bird park has come a long way in a generation. It is
now worth some S$172 billion ($122 billion) and claims a
compound annual shareholder return of 16% since inception.
Key agent of change for the development of Temasek,
the investment arm of the Singapore government, in recent years
has been the appointment of Ho Ching as chief executive in
2002. Ho is also the wife of Singapores prime minister,
Lee Hsien Loong.
Ho has converted Temasek from a Singapore-centric
holding company into a leading investor in Asia. Temasek
in the past five years has moved from being a passive custodian
to being an active and outstanding
investor, says Jim Rogers, the internationally acclaimed
So, although Temasek remains a major shareholder in
famous Singaporean companies notably Singapore Airlines,
DBS and CapitaLand its investment strategy is based on
profit not geography. We dont see our role as
shoring up anybody, Ho says. We see our role as
getting a return, and if there are opportunities for return, we
will be there.
Temaseks prolific buying of banks has made Ho
one of the key players in global banking. Temasek is one of the
largest shareholders in Standard Chartered, DBS, Indias
ICICI Bank, banks in Indonesia, South Korea and Pakistan, and
in China two of the biggest banks in the world, China
Construction Bank and Bank of China.
But it hasnt always gone well. Last year
Temasek mistimed investments in Barclays and Merrill Lynch and
was forced to sell the stakes at the bottom of the market.
Nevertheless, the global market rally has ensured that the
funds portfolio stands just 7% below its peak of $185
billion in March last year.
Temasek has hit the headlines in the past couple of
years with the acrimonious purchase of a stake in
Thailands Shin Corp which arguably led to the
overthrow of Thaksin Sinawatra, the prime minister, in 2006
and in Indonesia, where it holds large (and resented)
stakes in the countrys banking and telecoms sectors. Also
Ho was to have stepped down this year to be replaced by former
BHP Billiton chief executive Chip Goodyear but his recruitment
failed in July.
Ho can still point to market-beating returns over
almost any time frame and it is instructive that the
worst investments during her tenure have been in the developed
world. We felt there could be a downturn, says Ho.
But we were looking at the triggers in the wrong
places... we made the assumption that the developed economies,
particularly the large economies, are well managed and
regulatory risks are low, she says. Today, we pay a
lot of attention to what is being said and done in the
One characteristic of Temasek, under Ho, has been
its transparency. It doesnt disclose everything, but its
detailed annual reviews frequently top 100 pages. They are an
open book compared to sovereign funds in the Middle East.
Controversially, Ho last year introduced a
compensation system tied to performance, which resulted in
slashed pay and bonuses for senior executives.
She answers to a board containing only one member
in a direct government position, with a varied roster of other
members that balances locals with executive director Simon
Israel, formerly at Danone Group, and Marcus Wallenberg of the
Scandinavian SEB Group.
For the future, Temasek is going to cut the
developed OECD to just 20% of its portfolio and stick to what
it knows: 70% in Asia including Singapore, and a further 10% in
other emerging markets. Chris
Wright and Nick
Lou Jiwei, Chairman, China Investment
Chinas desire to make a return on its hard
currency reserves gave birth to CIC. Its boss shows little sign
of retreating into the shadows
China Investment Corporation (CIC), Chinas
$298 billion sovereign wealth fund, is back on a buying spree.
Having spent 2008 licking its wounds after its investments in
Morgan Stanley and Blackstone tanked, CIC is buying everything
from real estate to green energy projects, as well as pumping
money into outside asset managers.
The man behind its latest bout of acquisitiveness
is Lou Jiwei, a former Chinese vice minister of finance who
took over as chairman of the newly founded CIC in 2007.
Lou was widely known as one of the countrys
most seasoned financial operators. He was handpicked by the top
leadership to run the new agency, which was set up as an
alternative direct investment counterpart to Safe (the State
Administration of Foreign Exchange).
Lous brief was simple: like Safe, to mitigate
risks to Chinas immense foreign exchange reserves; and
crucially, to secure better returns than parking Chinas
hard currency in US Treasuries.
The funds investment philosophy is
stunningly different to the usual Chinese firms
reluctance to expand overseas, say Daniel Rosen and Thilo
Hanemann of the Peterson Institute for International Economics.
Foreign markets intimidate their bosses, who lack the
know-how to manage them or keep costs down. CIC derives greater
confidence from better management, although only two CIC board
members have significant experience outside of China.
That said, CIC has signally failed to achieve its
investment goals so far. Last year CIC posted a negative 2.1%
return on its global investment portfolio as the value of
stakes such as those in Wall Street bank Morgan Stanley and
private equity firm Blackstone Group slumped.
Now it is looking to pick up distressed assets in
the US through the government-sponsored stimulus programme, the
Public-Private Investment Programme (PPIP). But although US
financial institutions have proven disastrous, Chinese
investments have proved more positive.
CICs balance sheet has been saved by its
purchase of Central Huijin, a state-owned investment company
that invests in state-owned financial institutions in China; in
the last year it has bought stakes in Agricultural Bank of
China, China Development Bank and Citic Capital.
Lou said recently that things are looking up.
It will not be too bad this year. Both China and America
are addressing bubbles by creating more bubbles, and were
just taking advantage of that. So we cant lose.
Having a range of outside managers working with diverse asset
classes and locations should produce less volatile returns than
managing them in-house. He hopes to invest $6 billion in hedge
funds by the years end.
Ironically the hostility among western nations to
its acquisitions has played in CICs favour. It was
fortunate in having to abandon its bid for AIG for this reason.
This August, Lou admitted CIC had been saved from
further investments by protectionism in US and Europe.
Over the past few months CIC has bought stakes in
the Noble Group (the commodities supplier), Goodman Group
(Australias largest property trust) and Teck (a Canadian
mining firm), as well as sinking more money into Blackstone and
Morgan Stanleys real-estate arm. Meanwhile, Goodman and
Teck hope their relationship with CIC will allow them to make a
splash in the Chinese market.
Lou is worried his fund might miss out on a global
asset recovery, especially in companies listed on Chinas
exchanges. But Michael Pettis, a professor at Peking
University, says he is sceptical about the speculation over
unremitting growth of the CIC and its counterpart Safe.
He says both institutions will only accumulate
dollars as rapidly as the US current account deficit allows. If
the US closes its trade gap in the next few years as
many expect net foreign accumulation of dollars will
slow sharply, and with it Chinas build up of
For the time being, however, CIC remains the
worlds fastest growing sovereign fund.
Sheikh Ahmed bin Zayed Al Nahyan, Managing
When the credit crunch came, ADIA stepped out of the
shadows. The worlds largest sovereign fund is
increasingly looking towards domestic investment
When oil was discovered in Abu Dhabi in 1958, the
emirate had a population of 46,000, four doctors and five
schools. Most of the population lived in mud huts. Today, the
emirate has its own Guggenheim museum, its own Louvre, its own
Sorbonne, and the average net worth of its citizens is around
$16 million [TK really?]. Its city skyline is dotted with
skyscrapers, and perhaps the most impressive of all is the
gleaming 38-storey headquarters of the Abu Dhabi Investment
Founded in 1976, the fund is managed by Sheikh
Ahmed bin Zayed Al Nahyan, a 39-year-old western-educated
businessman, and the 12th son of the late president of the UAE,
Today, ADIA is thought to be the largest SWF
(sovereign wealth fund) in the world, and the second biggest
investor in the world after the Bank of Japan. Estimates of its
wealth vary from $800 billion at the top end, to the Council
for Foreign Relations more conservative estimate of $365
From its early days ADIA has been known for its
sophistication among its state-backed peers, investing in a
broader mix of assets, including equities, fixed income,
private equity and commodities. Eighty percent of the
funds assets are managed by external portfolio management
companies, but the strategy is determined in-house by a team
headed by Jean-Paul Villain.
Sheikh Ahmed has preferred to keep the fund out of
the headlines, but the credit crunch brought it on to front
pages of newspapers around the world when it invested $7.5
billion into Citigroup in November 2007, becoming the largest
single investor in the US bank as it struggled to
The deal, among other investments by SWFs into
beleaguered Wall Street firms, highlighted the shift in
financial power eastwards that the credit crunch
Since the credit crunch, ADIA has begun to move out
of the shadows, hiring two former Morgan Stanley press
officers, and also signing up to the IMF-brokered Santiago
principles, which commit SWFs to follow transparent commercial
SWFs had been heavily criticized, in particular by
politicians in the US, Germany and France, for using their
funds as instruments of state policy rather than maximizing
shareholder value. But Hamad al Suwaidi, a director of ADIA,
told Emerging Markets last year that hostility was
greatly reduced when we started the [Santiago principles]
process, and the more information we offered the less hostility
Over the past year, calls have grown for
government-backed funds to invest in domestic markets. John
Nugee, head of official institutions at State Street, says:
ADIA has had to change and evolve during the crunch, not
least by becoming a more public institution. It now has to
decide how much and where it wants to invest domestically,
having mainly invested abroad in the past.
The homeward shift has already begun. As part of a
drive to focus investments domestically, ADIAs investment
arm Abu Dhabi Investment Company rebranded in June. Now known
as Invest AD, the firm hopes to attract institutional investors
to regional investment opportunities. Julian
Prince Alwaleed bin Talal, Chairman,
Kingdom Holding Company
Defying stereotypes, Prince Alwaleed has risen to become
one of the worlds shrewdest investors blazing the
trail for a new generation of Arab wealth buying western
Back in the early 1990s, Arab investors were no
strangers to western markets, but they tended to keep a low
profile. Sovereign wealth funds occasionally made a blip on the
radar, and many private equity deals could be traced back to
the Gulf, but individual investors rarely made the
That all changed in 1990, when Prince Alwaleed bin
Talal made his international debut with the dramatic rescue of
Citicorp. Scion of the Saudi ruling family and grandson of
Lebanons first prime minister, the prince displayed a
knack for self-publicity and, more importantly, a keen eye for
undervalued companies. He would go on to build a reputation as
the Arabian Warren Buffet, in the words of Time
magazine, building a fortune worth some $21 billion by
Alwaleed defied western stereotypes about Arab
princes. At a time when most Gulf billionaires were sitting on
inherited fortunes and dabbling in local real estate, Alwaleed
put his capital to work abroad. After returning to the Gulf in
the 1980s from university in the US, he turned an inheritance
of less than $1 million into a billion-dollar fortune.
It was during this period that the prince, now 54,
showed a knack for spotting undervalued companies, including
Apple, News Corporation and Time Warner.
This was enough to gain Alwaleed international
recognition, with Forbes describing him as one of the
worlds shrewdest investors. It also made him the
poster-child for a new generation of entrepreneurs in the
The 1980s Arab is dead. The nouveau riche
Arab is dead, Sheikh Maktoum Hasher al-Maktoum, a member
of the royal family of the United Arab Emirates, said in 2004.
All we hear about is Bin Laden, Arafat, terrorists. The
Arab world needs its Bill Gates. Prince Alwaleed bin Talal is
the only one of us recognized for business. He is the only one
who has been exposed to the media.
Alwaleed was thrust into the limelight following
his rescue of Citicorp. It was a masterpiece of timing. At the
end of 1990 he bought 4.9% of the ailing banks existing
common shares for $207 million, going on to spend another $590
million on new preferred shares the following February. This
took his stake to 14.9%.
Two weeks later, Citicorps capital crisis
passed when a group of international investors bought a further
$600 million of new preferred shares. By 1994 the banks
share price had soared and Alwaleeds fortune and
reputation were secured.
The princes heavy exposure to international
markets, however, has in the past year proved a liability. His
flagship Kingdom Holding Company posted a loss of $8.26 billion
in the fourth quarter of 2008 due to the drop in the value of
its global investments, which include its 3.4% stake in what is
But with global markets and Citigroups
share price on the rebound, Alwaleeds fortunes may
again have turned. Yet even Kingdoms recent divestments
have made good returns, from a 5% stake in the local Samba
Financial Group to a 39% interest in the Four Seasons Resort in
Egypts Sharm el-Sheikh, which it sold for $70 million. If
the crisis has shown anything, it is that Alwaleed has an eye
for a good sell as well as a good buy.
And as of March, the prince still ranked as the
22nd wealthiest person in the world, according to Forbes
magazine, with an estimated net worth of more than $13.3
billion. Digby Lidstone
Omar Bin Sulaiman, Governor, Dubai
International Financial Centre
DIFCs extablishment cemented Dubais meteoric
rise as the world financial hub. It has also rewritten the
rules on Arab business
Its odd to think that the Dubai International
Financial Centre (DIFC) only opened five years ago. The
establishment of Dubai as one of the main financial and
business centres in the world has been so fast, and effective,
that it seems like it has always enjoyed a place beside London,
Hong Kong and New York.
The man who has played the longest and most
critical role in the centres establishment is Omar Bin
Sulaiman, DIFCs governor. The global financial
services landscape is, from this moment, forever changed,
he said when the DIFC was launched in 2002. We can now
say that the gap left by the capital markets of Europe and the
US in the west and Asia in the east is a step closer to being
Indeed, the DIFC, with Bin Sulaiman at the helm,
has to some extent rewritten the book on Arab business. Before
it was established, business climates across the Arab world
were often closed, inward-looking, opaque and inhospitable to
But the DIFC took a radically different approach.
Dubais government realized early on that a lack of
natural resource wealth placed a premium on becoming a
commercial hub. So the leadership re-invented the emirate as a
financial centre, and in doing so, tried to make the DIFC as
foreign investor-friendly as possible.
The DIFC has its own legal system, with laws that
are closely based on English common law. It has its own courts,
headed by Sir Anthony Evans, formerly a senior commercial judge
in the UK.
It has also attracted thousands of expat bankers,
lawyers, and other highly skilled workers with its offer of
zero tax on income and profits. It also has no restrictions on
foreign exchange or capital repatriation, and allows 100%
foreign ownership of companies and land.
Since the project was launched, it has quickly
attracted a critical mass of top financial names: Julius Baer
and Standard Chartered were the first banks to be granted
operation licences, followed by such blue chip firms as
Deutsche Bank, Goldman Sachs and Morgan Stanley.
Another important landmark was the launch in 2004
of DIFX, Dubais international stock exchange, which
became Nasdaq Dubai in 2007, when Bourse Dubai took a stake in
Nasdaq in return for Nasdaq buying a stake and giving its brand
to DIFX. Nasdaq Dubai has since expanded, buying control of OMX
last year. It also has a stake in the London Stock
That said, the past two years have been difficult
for Dubai, with the credit crunch putting strain on
over-leveraged state-owned firms such as Bourse Dubai and Dubai
World. Other regional financial centres such as Doha, Abu
Dhabi, Beirut and Bahrain have had easier times of it, and have
attracted greater interest from international firms.
However, bankers say they expect Dubai to remain
the key hub in the region. Dubais had a bumpy time
of it, but we think it will remain most western firms
choice as their main MENA [Middle East and North Africa]
base, says Karen Fawcett, global head of transaction
banking at Standard Chartered. Julian
Arminio Fraga Neto, Chairman, BM&F
The former central banker is leading the charge to boost
Brazils standing in global markets
Former Soros fund manager and central bank
governor, Arminio Fraga Neto, is a key figure in moves to
integrate Brazils domestic capital markets into global
Last year he became chairman of BM&F Bovespa,
the Sao Paulo stock exchange and futures market, and has helped
broker a partnership with the Chicago-based CME Group. He is
also negotiating a strategic, commercial and technological
partnership in equities with Nasdaq OMX Group.
As one of the vice chairmen of the Group of 30, he
is one of the authors of advisory reports on the post-crisis
financial reforms, which highlight a series of recommendations
to improve the system.
He is certainly one of the most influential
figures from Brazil on the international stage these days.
Naturally, this has helped boost the profile of the stock
exchange here, says Paulo Oliveira, director of business
development at BM&F Bovespa.
Although discreet by nature, Fraga can be outspoken
particularly over his desire to promote culture change
in the local financial markets, which are too dependent on
subsidized loans from BNDES, the Brazilian development
BNDES will have to stop breastfeeding the
market at some point, he said during a recent debate at
the Rio de Janeiro-based security exchange commission
He has got a huge challenge ahead of him. The
conditions to deepen this market right now are not ideal,
says William Eid, a Sao Paulo finance academic. Last
year, only 2% of funds used by listed companies came from the
stock exchange. The rest came from banks, debentures and their
own funds. The market is still very narrow. And the recent
experience with IPOs (initial public offerings) has not been
More than a 100 companies have been listed in
recent years, but the performance has not lived up to
expectations. I think he accepted this as yet another
challenge, Eid says.
Fraga leads a challenging double life
besides being chair of BM&F Bovespa in Sao Paulo, he also
manages his hedge fund, Gavea Investimentos, which he set up in
2003, in Rio. Nevertheless, his toughest challenge dates back
to early 1999, when he took over the presidency of the central
bank in the midst of a messy currency devaluation.
As an acknowledgement of his achievements as
president of the central bank, Fraga has been called the
Alan Greenspan of Latin America for his skilful
handling of Brazilian monetary policy. He led an amazing
revolution as he managed the crucial transition towards the
implementation of the inflation targeting regime in
Brazil, says John Welch, chief economist at Itau Unibanco
in New York.
There are a number of things in those markets
that still need improvements. The next step in the
modernization of the Brazilian capital markets is pretty much
guaranteed, he says.
Certainly his academic background he
received a PhD in economics from Princeton University
has proved a useful adjunct to his commercial experience.
Before becoming central bank governor in March 1999, Fraga held
many high-level positions in international economics including
being the managing director of Soros Fund Management in New
York and vice-president of Salomon Brothers also in New York.
Guillermo Ortiz, Governor, Bank of
Mexicos central bank governor spent a decade
banishing the demon of hyperinflation. The payoff: one of the
deepest and most liquid local debt markets of any emerging
market and the birth of a burgeoning global asset
As the global financial crisis gathered pace last
summer, Mexican president Felipe Calderon issued a rare public
challenge to the countrys central bank, indirectly urging
it not to raise interest rates. But central bank governor
Guillermo Ortiz was concerned about inflation. The three
monthly rate hikes that followed despite Calderons
comments, were proof of how the role of the emerging market
central bank has changed in recent years, and a testament to
the steely resolve of a man at the helm of the autonomy
Guillermo Ortiz is widely credited with bringing
economic stability to Mexico and, by banishing the spectre of
hyperinflation that long haunted the country, laying the
foundations for one of the deepest and most liquid local debt
markets of any emerging market. But his efforts have also
helped stoke demand for local currency debt across emerging
markets, spawning a new and rapidly growing asset class.
His presence has given investors comfort that
policy-makers in Mexico know what theyre doing,
says Alonso Cervera, an analyst at Credit Suisse, who closely
follows monetary policy.
Ortiz, a 61-year-old with a doctorate in economics
from Stanford University, first took the reigns of
Mexicos economy as president Ernesto Zedillos
finance minister between 1994 and 1997, helping to steer the
country out of the devastating Tequila Crisis. Upon
taking over as central bank governor in January 1998, his first
battle was against lingering contagion from the Asian financial
crisis, which was pounding emerging markets across the globe.
More recently, during the current crisis, the central
banks timely injection of dollars into the currency
markets has been credited with halting a potentially disastrous
slide in the peso.
In an interview with Emerging Markets in his
downtown Mexico City office, Ortiz succinctly summed up his
main achievements as having brought inflation down...
through a monetary policy framework people can
On his watch, Mexico has introduced inflation
targeting and begun using a reference rate as its main monetary
policy tool, replacing a complicated market short
system previously in place. But he says that in a developing
country still struggling to turn stability into growth,
technical issues make up only a fraction of his
I believe that as the governor of an emerging
market central bank, you sometimes have to go beyond the
traditional role of the central bank and try to have influence
over structural matters... he says. There is a job
to inform, and convince.
He is at his most vocal when trying to convince his
fellow countrymen of the need for deep-seated reforms including
an overhaul of one of Latin Americas most inefficient tax
systems. He acknowledges that the stability he has helped bring
to Mexico has brought enormous benefits, but he says it
isnt enough.You cant argue with
stability, he says. But what we need is a series of
reforms that give us a higher growth rate.
With the resources this country has, its
population and its proximity to the United States, its
really a shame that we havent had a better growth rate
over the past 25 years.
Ortizs reign will likely end very soon. His
current, second term as central bank governor finishes in
December. He is still young enough to serve again, though given
his perceived differences with Calderon, few local observers
believe the president will nominate him. But his legacies, at
least, should remain firmly in place. Greg
Henrique Meirelles, Governor, Central Bank of
Meirelles has ensured the clout of Brazils
currency boosting the nations international
standing along the way
Henrique de Campos Meirelles, in his earlier
political days in government or more recently as central bank
governor, has played a decisive role in turning Brazil from a
black sheep among indebted emerging nations into a market
He has been one of the key figures who have
enhanced perceptions of the Latin American giant, allowing it
to speak louder and to gain greater influence in international
forums, including the IMF. More and more countries have
been accepting the idea of a rebalancing of power, says
Meirelles in an interview with Emerging Markets.
This is going to happen.
Political efforts to boost Brazils impact in
the reform of global governance have been led by president Luiz
Inacio Lula da Silva and his finance minister Guido Mantega,
but Meirelles has been a central player in restoring
credibility and confidence in financial circles.
The Brics [Brazil, Russia, India and China]
had a successful meeting in London; we are discussing
local-currency trade agreements; this is one area where we can
cooperate. We can help balance the world economy, he
The first local-currency trade agreement, which
limits the use of the dollar to the minimum in bilateral
transactions, was implemented with Argentina last year.
Operationally it is complicated, but this is a good
project. It is cost effective. The experience with Argentina
shows that such agreements grow slowly but steadily, and
smaller traders benefit the most, he says.
Obviously the bulk of the trade is still
going to be in dollars, but this local-currency trade is
growing and its very promising.
As Brazil has beefed up its reserves under
Meirelles tenure, it has also become one of the largest
holders of foreign exchange in the world with around $220
billion. There have been some recent changes in the composition
of these reserves, but Meirelles has denied that Brazil would
consider walking away from the dollar. We are moving
carefully on that line; we have a balanced portfolio. We do not
intend to change that, he says.
Domestically, Meirelles, who is the longest-serving
central bank governor in Brazilian history, is confident that
Brazil has emerged faster than most from the global financial
crisis, and stronger than when it was sucked in by the credit
crunch in the last quarter of 2008.
The central bank was able to restore credit to
exporters and other market players through a series of market
interventions even before relaxing monetary policy. Meirelles
has argued that the subsequent cuts in the benchmark Selic rate
and fiscal incentives had a more powerful impact because the
credit market was already in a better shape.
We only cut interest rates this January, when
the credit market was functional and when monetary policy was
already with some traction, he says.
Brazil has gone through the most difficult economic
period since Meirelles came into office in January 2003, and it
has gained yet greater credibility, he says. He reckons that
policy instruments have been tried, tested and found to work.
More to the point, the economy is growing again.
Zeti Akhtar Aziz, Governor, Bank Negara
Malaysia, more than many of its emerging market peers,
has staked its claim to being master of its own economic
destiny. Monetary policy is a key part of that story
Zeti Akhtar Aziz, governor of Bank Negara Malaysia,
the central bank, has lived through tumultuous times. During
her time as assistant governor in 1995 and governor in 2000 she
has witnessed the south-east Asian economic explosion, the
regional financial crisis, food and commodity boom and busts,
the global financial crisis and the dawning of political change
Zeti, who has been at Bank Negara for more than
half of Malaysias history as a federal state, has been a
part of two movements that are likely to be seen as key to
Malaysias long-term economic development.
The first is being a part of the countrys
well-do-it-our-way riposte to both financial crises a
decade apart a stance that is unlikely to change. Zeti
was not the main architect of Malaysias strident approach
to the Asian financial crisis, the prime minister Mahathir bin
Mohamad was, but she was influential in implementing the
She looks back on that time with evident pride,
apparently feeling that lessons could have been learned by
bigger powers last year. Leadership plays an important
role in being decisive, and we didnt have a fragmented
regulatory regime, which plays a very important role, she
says in an interview with Emerging Markets. It
all resided in the central bank.
The central bank drove the launch of an asset
management corporation to deal with the bad assets
and we just called them that, bad assets an
approach that, much doubted at the time, worked.
Malaysias approach, and Zetis, since
then has been in keeping with this sense of a broader plan and
an apparently healthy disdain for what the world thinks it
Plenty is arguably wrong in Malaysia
competitiveness of its companies on a world stage, corruption
in politics, the quality of the judiciary, and people will
forever argue about whether the 1998 capital restrictions
helped or hindered the country but monetary policy has
not been among the problems under Zetis governorship.
Instead, Malaysia has gradually loosened its
foreign exchange and other restrictions, liberalized its
financial sector at its own pace, and continued to do its own
thing in the face of international opinion.
Along the way a much more viable freestanding
banking industry has grown, one that has survived the global
financial crisis unscathed.
This year she has driven through a new Central Bank
Act which enshrines her institutions independence,
although she insists: At no time in my entire career have
we ever been instructed [by government]. During my tenure there
have been six ministers of finance, and they have all made
public announcements that the central bank decides interest
rates and determines monetary policy.
For all her monetary savvy, though, history may
remember Zeti most for her contribution to the development of
Islamic finance. Malaysia has the most sophisticated legal and
regulatory environment in the world for Shariah banking,
takaful (insurance) and asset management.
Although this has been a tripartite drive by
finance ministers, Securities Commission chiefs and the central
bank, it is Zeti who has been going around the world spreading
the word about both the financial discipline and
Malaysias role in it.
Having built a strong domestic industry, Zeti has
been at the heart of the next step: to bring in international
expertise and, ultimately, capital through the Malaysia
International Islamic Financial Centre.
We are evolving into becoming an
international Islamic financial hub, she says.
Its a meeting place of those who need to raise
funds or have surplus funds for investment from any part of the
The jury is still out on whether she and Malaysia
can achieve this next step the foreign institutions have
come, but not yet the portfolio flows but if she does
make Malaysia a global home for Islamic capital, it may prove
the most significant contribution of all.
Mohammad Al Jasser, Governor, Saudi Arabian
Saudi Arabias central bank governor is setting out
to transform the kingdoms financial sector to match the
nations global standing with trademark
SAMA, the Saudi Arabian Monetary Agency, has a
well-respected and traditionally prudent monetary stance. The
incoming governor, Muhammad Al-Jasser, who started this
February, says that it will be business as usual under his
Al-Jasser has made it clear he is not about to
ditch the conservative policies of the Saudi regulatory
authority. As he said earlier this year: While we have
been accused of a lack of imagination, our basic strategy has
been vindicated, and as such, our economy and monetary policy
SAMAs prudence, going back many years, has
ensured that Saudi Arabian banks have not suffered the problems
encountered by less rigorous monetary authorities elsewhere in
With Al-Jasser, the prudence is married to a
pragmatic approach that affords radical measures when needs
must. No risks are taken on the investment side, and on
the monetary side SAMA is doing the right things to incentivize
growth, says John Sfakianakis, chief economist at Banque
This year SAMA has deployed a large slice of the
foreign assets it had invested in over previous years to
provide a stimulus to the economy. Net foreign assets reached
$438 billion by end-2008, but have been depleted by $56 billion
over the first seven months of 2009, as the government engaged
in a massive spending programme designed to limit the impact of
Saudi Arabia is an integral member of the G-20
group of economies. It is also poised to play a more prominent
regional role. Six of the Gulf Cooperation Council (GCC) states
are attempting to create a central bank for the region in a
drive towards monetary union. The plan, so far, is that the
central bank will be based in Riyadh. If this goes ahead,
al-Jassers brief will be greatly expanded.
Moves to create a financial centre in Riyadh around
the central bank are inevitably difficult given the
sensitivities and sensibilities of other GCC states. SAMA
does not want to impose itself on the region; it wants to help
the GCC become more cohesive, says Sfakianakis.
There are other challenges facing the SAMA governor
this year. One is the issue of corporate governance and
transparency, highlighted by large debt defaults linked to two
prominent Saudi business empires, the Algosaibi and Saad
The revelation of debts worth an estimated $15.7
billion owed by the companies to at least 80 banks, has
compounded Saudi lenders risk aversion, at a time when
the central bank is doing all it can to encourage them to
increase lending. But Al-Jasser has made it clear that SAMA
will not be buying up debts owed to local banks.
A bigger challenge ahead is how to enhance the role
of the financial sector as a catalyst of Saudi economic growth.
The kingdoms position as the worlds leading oil
exporter has endowed it with a massive influence on the global
economy, and one that will increase over time as non-Opec
(Organization of the Petroleum Exporting Countries) supply
SAMA needs to make sure that Saudi
Arabias financial sector plays a role that matches its
global standing. The role of banks is critical in that,
says Jarmo Kotilaine, chief economist at NCB Capital.