Finance ministers in the spotlight


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A look at some of the more-effective fiscal policymakers over the past year from Colombia, Philippines, Poland to Saudi Arabia.

Colombia, former finance minister, Juan Carlos Echeverry

Before his removal, Echeverry has been credited as one of the best finance ministers in Latin America, with a constructive relationship with Congress, despite his no holds-barred rhetoric. While Colombia’s strong fundamentals have greatly contributed to the successful economic performance, the charismatic Echeverry put in place a stable team in the ministry. He instigated a series of swinging fiscal and regulatory reforms that have had a clear and direct impact for the better. Colombia, under Echeverry’s watch, attained investment-grade status from the three rating agencies and the pace of reform – and economic growth – continues. Tax receipts have been rising rapidly in the past two years since Echeverry closed off a series of loopholes and deductibles. Granted, oil prices have helped boost the country’s fiscal position but collection is up across the board: income tax, sales tax, financial transaction tax and patrimony tax. Echeverry proposed a radical overhaul of the country’s tax system – a politically sensitive issue in itself. However, the tone that preceded the reforms created antagonism among many in the financial world, even before the proposals were published, triggering criticism. “He talks too much, his openness of speech means that he sometimes has to backtrack,” says Camilo Pérez Álvarez, head of economic research at Banco de Bogotá. “One problem has been another tax rule he tried to put forward. It was very technical and they haven’t been able to sell it to the public. They’re trying to simplify it and make it more public friendly.”

Stay tuned to read Euromoney’s interview with the former finance minister in our September magazine edition.

Poland, finance minister, Jan Vincent-Rostowski
Overall, Rostowski can be considered as an efficient minister of finance. He has good political support and is one of the crucial individuals within the Civic Platform. Poland’s fiscal strength has been driven by a strong economic performance in 2011, the strength of domestic banking liquidity, and fiscal prudence. A factor is the decrease in state contributions to private pensions, which helped the government substantially on reaching its fiscal goals. However, despite the fiscal efforts, Rostowski has failed to enact a fiscal rule – the main policy focus has been on reducing investments and raising revenues. On the latter, Rostowski has introduced a VAT hike and increased insurance contributions, with pending changes to the personal income tax. The pension reform is considered particularly important, since the private pension system (OFE) had generated losses that forced the state to subsidize the system to the amount of 1.6% of GDP annually. The reform has helped to keep public debt below the constitutional threshold of 55% of GDP in 2011. Although the increase in the retirement age is a step in the right direction, the reform can only be assessed as a gradual one, as it will be completed in 2020 for men and only in 2040 for women. Adam Antoniak, economist at Bank Pekao, says: "Although the government has never officially admitted it, euro zone membership is no longer the main economic policy objective for Poland given the sharp adverse shift in the perceived cost-benefit balance (a need to bear the bailout costs, lack of flexibility in foreign exchange, risk of asset bubbles amid unsustainably low interest rates, etc.) He adds: "From a political view, the government will continue declaring its intention to enter the euro in order to stay as close as possible to the European decision-making table”.

Poland will continue to reassure the financial markets that eurozone membership remains a target, but, in the meantime, Rostowski’s economic nous and fiscal prudence have engendered market confidence. As Adam concludes: "On the positive side it should be noted that Rostowski’s actions are systematical and no ‘nervous moves’ are taken."

Philippines, finance secretary, Cesar Purisima
Analysts are united in their praise for Purisima. He has slashed the national deficit – while boosting growth and foreign investment – without introducing any new taxes or hefty tax reforms. The minister has boosted the ministry’s revenue-generating efforts and tasked the Bureau of Internal Revenue, which sits within the finance ministry, to combat tax evasion and maximize revenue from corporates, says Steve Almeda, economist at the Manila-based Asian Institute of Management Policy Centre, and ECR contributor. In tandem with the administration’s avowed strategy to beef up transparency, Purisima has made spending decisions more transparent by publishing more data and spending information online. “He’s doing his job verjy well and people are happy with the co-ordination between fiscal and monetary authorities,” says Almeda, citing the central bank’s inflation-fighting credentials. Christian de Guzman, Moody’s analyst in Singapore, and ECR contributor, adds: “Debt sustainability has improved in Philippines and that’s a structural change. There have been two ratings upgrades since the financial crisis, and that’s a testament to the country’s inherent structural strengths.” After tightening the screws on spending in the last fiscal year, the government is increasing in absolute and relative terms expenditure on infrastructure, education and social services. “The president [Benigno Aquino] is very cognizant of the need for good governance and that’s boosted by the finance secretary, who has championed this cause for some years,” Guzman concludes, citing Purisima’s resignation from his current post in the previous administration amid a political scandal in 2005. Saudi Arabia, finance minister, Ibrahim Abdulaziz al-Assaf
Saudi Arabia has embarked on a large-scale economic reform agenda in an effort to diversify its economy, move up the value chain and generate jobs. The finance minister is considered pro-active and dynamic, helping – in conjunction with the central bank, in particular – to push through the historic mortgage law. The reformist is credited for his pragmatism and collaboration with the royal family and the economic ministry, which is pushing through an ambitious job-creation scheme. Economists still complain the ministry is still too opaque with its data, and the ministry is spending too much on wages and salaries to placate its citizens, and subsidizing petrol, which creates market inefficiencies. James Reeve, a senior economist at Samba Financial Group, says: “The finance ministry is relatively pro-active and dynamic, but is still opaque with its fiscal data, which is released with considerable delay, with a tendency to spend more than is declared.” What’s more, the composition of spending remains tilted towards current spending, not investment. Tilting more towards productive investment would support economic growth in the tougher times ahead, argues Rachel Ziemba, a senior analyst at Roubini Global Economics.