Statement of the Deutsche Bundesbank
- Susana Almuina, Ian McCarthy, Gabriel Sensenbrenner, and Justin Zulu
- Published Date:
- December 1995
The Bundesbank’s experience of the technical assistance provided to central banks in the Baltic countries, Russia, and other countries of the former Soviet Union has, on the whole, been satisfactory. We are very pleased to note that, in conjunction with other cooperating central banks and appropriate multilateral organizations in many countries, we have been able to contribute to the reform of the central banking and financial systems, and thus have helped to lay a major cornerstone of efficient market economies. Ever since the process of transformation and reform began, the Bundesbank has regarded its involvement in this historic task as one of the greatest challenges facing it in the field of external relations. In the final analysis, what is involved is no more and no less than achieving an enduring improvement in the living conditions and prospects of about 300 million people, and placing world peace on a sounder footing. Furthermore, we Germans, in the light of our historical experience, feel a special sense of responsibility for ensuring the success of the economic and social transformation process.
By its activities to date the Bundesbank has covered the complete range of technical assistance rendered to foreign central banks in the countries concerned. Since such aid was institutionalized by setting up a coordination unit at the Central Office of the Bundesbank, support has been provided to 11 countries via 50 training programs and 90 consultancy schemes. In addition we have, in certain cases, seconded expert staff on a longer-term basis, and we have participated in 23 multilateral missions under the auspices of the IMF.
To ensure that its assistance is of the highest quality, the Bundesbank has only deployed staff of its own who have profound theoretical knowledge and, in particular, also practical experience of central banking operations. Above all in the field of consultancy, and also in many areas of training, we think that there is little point in deploying personnel who have never seen the inside of a central bank. Although we have been able to enlist the services of retired Bundesbank staff (including former members of our governing bodies) and of the entire personnel pool made up of the staff of our extensive branch-office network, the heavy demand for our services has meant that we have constantly been faced with serious problems in respect of mustering sufficient personnel.
At the Bundesbank, just as in any other major organization, highly qualified personnel (that is, those suitable for technical assistance assignments) are in fairly short supply and also, alas, face the heaviest demands in their daily work at the bank, and hence they are often the least dispensable members of staff. It is unfortunately not possible to increase the number of employees specifically for the purpose of rendering technical assistance to central banks, since the Bundesbank, like the rest of the public sector in the current difficult economic situation in Germany, cannot ignore the compelling need for leaner organization. As a result we are being forced in many areas actually to cut back the number of employees, in some cases substantially.
Hence there is no alternative to assigning the highest priority to using our scarce human resources as efficiently as possible in the field of technical assistance, as elsewhere. To this end, the Bundesbank has taken a series of organizational measures (such as the aforementioned centralized coordination of assistance measures) in order, on the one hand, to identify the most suitable staff members and, on the other, to spread the personnel load ensuing from the technical assistance measures over as many shoulders as possible so as to minimize the disruption to the internal functioning of the Bundesbank caused by the secondment of staff. Unfortunately, we have also felt obliged to restrict our offers of support to a relatively small number of countries. This decision, which we took only with the greatest reluctance, reflects our experience, and, no doubt, that of other central banks as well, that the success of technical assistance measures depends to a large degree on ensuring that cooperation between the donor institution and the recipient institution is as continuous as possible, which means that considerable resources are tied up for long periods. In other word, past experience argues against offering technical assistance on an indiscriminate and universal basis.
Given this situation, it is highly desirable that the recipient central banks likewise make the most efficient use of the technical assistance we provide. However, this does not always appear to take place to the requisite degree. For instance, we view with concern attempts to simultaneously engage the services of several different central banks for one and the same technical assistance project. This approach may be due to insufficient coordination on the part of the requesting institutions, or to a deliberate intention to ensure the best aid package by choosing from among several rival sources of technical assistance. The latter approach may appear understandable, given the lack of familiarity with the Western financial system on the part of some recipient countries; however, this method of obtaining assistance by shopping around or picking and choosing in the various training and consulting sectors involves considerable risks for the reforming central banks: it ties up additional staff resources on the recipient side that, in view of the diverse demands at the operational and more especially at the management level, are already under severe stress anyway. Even more importantly, this approach disregards the fact that Western central banking and financial systems, irrespective of the generally high level of efficiency, display some substantial disparities in regard to their institutional and organizational structures as well as their basic philosophies. So as not to run the risk of trying to combine ultimately incompatible components, the recipients would be well advised, once they have taken the basic decision to opt for a particular system, to try to collaborate only with donor banks which typify that system. This point is reinforced by the importance just mentioned of the continuity of cooperation between recipients and donors for assuring the success of technical assistance measures.
Unfortunately, this continuity is jeopardized in some cases by other factors: by rapid turnover rates of both management and staff among the recipient banks, and by the instability of the underlying macroeconomic conditions.
Frequent changes at both the operational and management levels have led to serious setbacks in the pace of reform. It is extremely frustrating, and also very hard to explain to our internal auditors (not to mention German taxpayers), when training schemes in such critical areas as foreign exchange dealing have to be restarted from scratch because the previously trained members of staff have in the meantime left the recipient bank. Possibly even more frustrating (and certainly equally wasteful) is a high turnover rate at management level, especially as the spirit of mutual trust which is so important for ensuring fruitful cooperation has to be built up all over again with the new interlocutors.
Some people may console themselves with the thought that, in the event of frequent personnel changes, the invested technical assistance input is not actually lost but, as a rule, ultimately benefits the private sector in the reforming countries. However, we believe that, in the interests of achieving an early and sustained economic recovery, it is crucial to give priority to creating viable free-market institutions and structures. To that extent the recipient banks bear a particular responsibility for retaining their staff, at least those in key positions, by providing sufficiently attractive working conditions and remuneration.
As for the stability of the underlying macroeconomic conditions, all past experience goes to show that efforts aimed at structural policy reform undertaken in an environment of frequent changes of course and financial indiscipline are ultimately not only doomed to fail but may also further exacerbate the macroeconomic instability. Inflation at three-figure rates, and still rising, and the reintroduction of administrative controls in previously liberalized areas are therefore causing us to wonder whether we ought not to reconsider our existing technical assistance commitments with a view to making more efficient use of resources.
In seeking to solve the aforementioned problems, we are pinning high hopes on the coordinators of technical assistance to central banks who have now been appointed by all recipient central banks, and we hope that a useful dialogue will develop on this issue at the meeting in St. Petersburg. But we are pinning equally high hopes on the IMF. Judging by our experience, its leadership in the field of central bank assistance and its coordination of such assistance among the donors have been a success. We only wish, it must be said, that its stabilization programs would meet with an equal degree of success. To ensure the maximum effectiveness of the assistance programs and in view of their significance for the whole transformation process, as already indicated, we would also appreciate it if the IMF, in its country papers, would regularly provide a detailed and candid assessment of the progress made in reforming the central banking and financial systems, including the recipient countries’ readiness to cooperate.
All these problems should not detract from the fact that, as mentioned at the beginning, we are satisfied on the whole with the success achieved so far with our assistance measures. It is particularly gratifying that some of the central banks supported by us have not only become largely self-reliant, thus obviating the need for further assistance measures, but have even begun to pass on the expertise they have acquired to other central banks. Admittedly, such examples are still rare. On the whole, however, we have noticed that the pattern of the requests for technical assistance addressed to us is changing distinctly: thus, interest in general theoretical instruction and advice is being superseded by a marked increase in the demand for concrete, project-related training and consultancy assistance. This change in trend likewise implies that discernible advances are being made. We have adjusted the available range of technical assistance programs accordingly. One consequence of this adjustment, which will probably be implemented in the course of this year, is that we shall be offering standardized central bank seminars, covering changing money and financial market policy topics, to meet the residual demand for general training and instruction. These seminars will be open to all interested central banks, and will be held three to four times a year, depending on the demand.