Resignations cap terrible first year for Polish central bank chief

By bne IntelliNews January 25, 2008

Jan Cienski in Warsaw -

Slawomir Skrzypek was a controversial choice to head Poland's central bank. With the latest resignation of a deputy governor on Thursday, January 25 capping a terrible first year in office, the fears of sceptics who wondered whether he was up to the job appear to have been borne out.

Deputy Governor Jerzy Pruski cited an inability to work effectively at the bank under the leadership of Skrzypek as his reason to resign. Purski joins Krzysztof Rybinski, another deputy governor, who quit in early January.

"Over the last year, as a result of the decisions of the governor and the management board, significant organisational changes took place at the central bank accompanied by significant personnel changes," Pruski said in a statement. "In such conditions, decisions were made contrary to what I would consider to be the proper functioning and development of the bank."

Certainly, those decisions by Skrzypek on inflation, the restraint of which is the most crucial job of any central bank chief, have proved to be spectacularly wrong. Last year, as food and fuel prices shot up and private sector workers won double-digit pay increases, Skrzypek kept insisting that inflation was not a worry. He consistently voted against interest rate hikes during the monthly meetings of the 10-member rate-setting Monetary Policy Council, at one point being the only hold-out voting against a rate increase. Despite Skrzypek's calls for calm, inflation is now at 4%, far above the bank's target of 2.5%, and a further round of interest rate increases is expected this year to try and bring inflation under control.

He remains unchastened. In recent comments, he said the data didn't support a long-term rise in inflation, and that wage pressures were not a serious problem, contradicting the public comments of most other MPC members.

His dogged resistance to interest rate increases has shredded his influence as head of the central bank, and his statements are heavily discounted by financial markets. "He is not a crucial element in the formation of monetary policy," says Janusz Jankowiak, chief economist for the Polish Business Roundtable. "His views don't have a lot of influence on the Council's decisions."

Being a dove was why Skrzypek was unexpectedly chosen by Lech Kaczynski, Poland's president, to replace Leszek Balcerowicz, the architect of Poland's post-communist economic reforms. Kaczynski and his Law and Justice party blamed Balcerowicz for botching the privatisation of state-owned companies and for being an interest rate hawk, accusing him of unnecessarily slowing the economy in 2001.

However, Skrzypek didn't have a lot of authority to lose when he took the job. He does not have a doctorate in economics, and was named at the last minute only because he is a close ally of Kaczynski, at one point serving as deputy mayor of Warsaw when Kaczynski was the Polish capital's mayor. His first hearing before a parliamentary committee was an error-filled stumble, in which he struggled with the name of Ben Bernanke, the head of the US Federal Reserve, and named the dead Wim Duisenberg as head of the European Central Bank instead of Jean-Claude Trichet. An excerpt of his testimony became a Polish YouTube hit.

The one positive of his embarrassing start was that Skrzypek has been very careful in his subsequent public appearances, making sure to say nothing that would destabilize financial markets. "In this case, the less he says the better," says Ryszard Petru, chief economist with BPH bank.

Jankowiak says he sees that over the last year Skrzypek "has mastered the vocabulary" of his job, but that Poland's central bank governor "is still not a realistic partner for other members of the Monetary Policy Council or other central bankers."

Making it personnel

Skrzypek has spent much of his first year on the internal management of the bank and on personnel issues. Those are his strengths. When he was acting head of Poland's state-owned PKO BP bank, he brought in a lustration programme aimed at getting rid of employees who had compromised themselves during communist rule. At the national bank, his personnel policies have alienated many long-serving officials. They were cited by Deputy Governors Rybinski and Pruski in their resignation statements. Saying that he had been ignored over concerns about rising inflation and internal changes in the bank, Pruski added: "Governed by my knowledge and experience I announced my opposition to decisions of the governor ... all of my submissions were ignored."

Skrzypek also set up an informal advisory board of economists which ended up getting into a public spat with the MPC, diminishing the rate-setting body's authority.

While Balcerowicz was an enthusiastic supporter of Poland's rapid entry into the Eurozone, Skrzypek has been much more circumspect, establishing a panel to look at the positives and negatives of euro adoption and has ended the bank's previous role as an advocate of the common currency.

Finally, Skrzypek lost a bureaucratic battle to retain Poland's banking regulator within the national bank. The previous Law and Justice government passed a law stripping the bank of its regulatory role and handing it over to the newly created Financial Supervision Authority, which regulates pensions, insurance and the capital markets. The motive was to remove as much authority from Balcerowicz as possible. When Skrzypek took Balcerowicz's place, Law and Justice tried to backtrack but, after losing October elections, was unable to prevent the transfer.

For now, Skrzypek's troubles have not affected Poland's strongly growing economy, but the global environment will be much less benign than in the past, and Poland could pay a price if it does not have an experienced and trusted central bank chief. "Central bank governors are tested in tough times and tougher times are now coming," says Petru.

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Resignations cap terrible first year for Polish central bank chief

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