Not every central banker can fend off bank runs, defend a small economy from crises in neighbouring countries and hold inflation down in the midst of severe political turmoil.
Even fewer central bankers command the respect of a wide range of politicians, commercial bankers and private businessmen alike – especially in a country racked by bitter conflict over economic resources and social inequality.
Yet such are the achievements of Juan Antonio Morales Anaya, 62, Bolivia's central bank president. His 10-year tenure at the Banco Central de Bolivia makes him the longest-serving president in the history of the country's central bank since its founding in 1928. "He's our Greenspan – people would like to have him around," says Rudy Araujo, executive secretary of the Association of Supervisors of Banks of the Americas.
In the decade before Morales Anaya's appointment, the central bank had six presidents.
Morales Anaya has seen through important reforms to modernize Bolivia's central bank, while successfully managing crises caused by market turbulence and financial system distress. Since the job of banking supervision was spun off into a separate entity a decade ago, the central bank's mission has been to control inflation.
Small but strong
The governor's reforms have reputedly made the bank "the strongest central bank in countries of that size in Latin America", according to a source familiar with the reform process. His reforms have also boosted efficiency at the institution: by trimming staff from 750 to 450, Bolivia's is now the smallest central bank in the world after New Zealand.
Strengthening the bank couldn't have come too soon. Bolivia's small economy – a GDP of about $22 billion, with negligible domestic demand considering 64% of the population lives in poverty – has been exposed to external shocks. In late 1998, Brazil's economy began to teeter before its major currency devaluation the following year; shortly thereafter, crisis in Argentina led to the largest debt default in history.
As a highly dollarized economy, Bolivia's flexibility was limited. But structural reforms – among the deepest undertaken in Latin America in the 1990s – allowed the economy to grow briskly at an average of 4%, with declining poverty rates. The sweeping privatization schemes unleashed a steady flow of direct foreign investment.
Careful management of the boliviano's exchange rate also helped isolate the economy from troubles on Bolivia's borders, especially the Argentine crisis, says Morales Anaya. "We secured the financial system by meeting its liquidity needs and coordinating with the [banking] superintendent, almost hour by hour, on the status of deposits and solvency of the banks," he says.
Loans to banks to boost liquidity required strong collateral and were granted with high interest rates to encourage prompt repayment. "I don't want to discount [the fact] that we had a little luck," Morales Anaya adds.
Domestic pressure
But external shocks haven't been the only challenge the banker has had to face: domestic unrest has in many ways been a far more acute pressure on the country. In October 2003, protests over privatizations and Bolivia's newly discovered huge gas reserves drove former president Gonzalo Sanchez de Losada out of power. The next president, Carlos Mesa, resigned this June following hundreds of protests against the hydrocarbons law. The current caretaker president, Eduardo Rodriguez, will hold new elections in December.
Throughout, Morales Anaya has managed to keep the banking system solvent, a fact which he modestly ascribes to having a strong economic team. "Bolivia has stronger institutions than it would appear from the outside and that has allowed the country to avoid a financial crisis," he says. The professional staff at the central bank, finance ministry and banking supervisory committee are stable, providing expertise and "institutional memory" in times of volatility, he says.
Others see the steady hand at the central bank as a decisive factor in keeping Bolivian banks on course. "Even with social problems, the financial system has not burst; in any other banking system there would have been a bust or a run," says Guillermo Romano, a banking specialist.
Among the reforms to keep banks afloat was the establishment of a liquidity requirement for banks, equivalent to 12% of bank deposits. The requirement accomplishes two goals: "It is a way of keeping deposits by the banks in the central bank so they are not used to finance deficits, and an innovation is that banks with liquidity problems can borrow from the central bank with a guarantee of their liquidity deposit," explains Romano.
The liquidity requirement has a direct impact on bank solvency. In normal times, the requirement promotes better management of banks' treasuries, and in crisis times it helps banks defend themselves against runs. It also helps control inflation by reducing volatility, analysts say.
Technical assistance programme
Morales Anaya contributed strategic orientation for a wide-ranging technical assistance programme provided by the IMF in the late 1990s. He helped oversee the introduction of a sophisticated and competitive system for managing international reserves. Aiming to maximize return and control risk, the central bank turns over a small portion of its reserves to money centre banks and international asset managers for investing.
The central bank staffers who manage reserves then compete with the external fund managers for returns. "To our satisfaction, we have performance that is very comparable with that of the delegated administrators," says Morales Anaya.
A major overhaul of the bank included a sharp reduction in staff, improvements in the pay scale and an aggressive training programme that has improved the technical ability of the professionals. By 2000, the bank had completely updated its accounting system, converting it to real time, and upgraded its information technology.
The system for distributing currency was revamped and outsourced to a transportation company. This helped meet the challenges of getting money from the central bank's only office, based in the capital La Paz, to all the remote communities scattered across the difficult geography of Bolivia's highlands and jungle regions. At the same time, Morales Anaya is pressing for greater distribution of the local currency, the boliviano, to try to reduce dollarization of the economy gradually.
Morales Anaya may not have seemed like a natural for the job. Before being appointed to preside over the central bank in 1995, his entire professional career had been spent in academia, teaching economics and then leading the department at the Bolivian Catholic University in La Paz for over 20 years.
But the seasoned academic had cemented his credentials as a leading economist, both at home and internationally. He was also the first central bank president to be named to the post through an institutional process in which he was handpicked from a shortlist by the Bolivian president.