Woman of power
Another woman rose to a powerful global position when US President Barack Obama nominated Janet Yellen to head the Federal Reserve Board. If the 67-year-old Yellen gets Senate approval, she will move from vice chair to succeed Fed Chair Ben Bernanke in January 2014. The position is one of power in the international financial arena. As Obama said in remarks announcing Yellen’s nomination last Oct. 9, “the world looks to the American Fed chair for leadership and guidance.” Another influential global financial institution—the International Monetary Fund—is also headed by a woman, Managing Director Christine Lagarde of France.
As chair of the US central bank, Yellen will have the urgent task of crafting a strategy for unwinding a massive economic stimulus program designed in 2009 to resuscitate the weak American economy. This was anchored on the $85-billion-a-month bond-buying activities of the Fed. By injecting funds into the system, the Fed is hoping that economic activity would pick up. Part of the money found its way to emerging stock markets where yields were higher. Last May 22, however, Bernanke made a cryptic statement before the US Congress that hinted at a tapering of this easy-money policy, causing in the process financial ripples across the globe that wiped out more than $1 trillion in the value of emerging-market stocks. But last Sept. 18, the US Fed defied investor expectations by postponing the start of the tapering of its monetary stimulus, saying it wanted to see more evidence of solid economic growth. Bernanke also declined to commit that the bond purchases would be cut this year.
It was the unclear pronouncement on what America intended to do that has alarmed monetary officials worldwide. It was reported that at the Economic Policy Symposium sponsored by the Federal Reserve Bank of Kansas City in Wyoming last August, Fed officials were pressed by international policymakers to spell out their intentions better in the interest of safeguarding global growth. The concern of emerging markets is that when the Fed begins tapering its bond buying, it could hurt them by triggering an exodus of cash that, in turn, can lead to higher borrowing costs as central banks raise interest rates to stem capital flight and keep some of the funds at home. Brazil, India, Thailand and Indonesia were the most affected after Bernanke’s tapering speech last May. The Philippines was affected, but to a much lesser extent.
Given the reactions of stock markets and international policymakers to Yellen’s appointment, emerging markets like the Philippines can rest assured that a tapering of the US bond-buying program is not coming soon. International financial news provider Bloomberg’s interview with a number of international monetary officials attest to this. Yellen’s nomination signaled stability, policy continuity and a “steady course for the Fed,” according to our own Finance Secretary Cesar Purisima. Turkish Deputy Prime Minister Ali Babacan said the appointment brought a “person that we know and like.” A deputy Indonesia central bank chief said the appointment would be positive for local and global financial markets, and a top economic official in India said it meant extra time to narrow current-account gaps in developing nations whose currencies suffered after Bernanke’s statement last May. Choi Hee Nam, director general of the South Korea finance ministry’s international finance bureau, also told Bloomberg: “I expect [Yellen] to consider well the ripple effects on other countries” from policy decisions such as reducing the Fed’s bond-buying program.
Yellen’s track record bolsters this fact. As the Fed’s No. 2 official, she always backed the case for maintaining easy-money policy. In a series of 2012 speeches, she was reported to have outlined why rates should remain near-zero into late 2015, and in a 2011 speech also justified the Fed’s first two rounds of bond-buying activities, known as quantitative easing or QE, with an estimate that these would create three million jobs for the US economy.
Simply put, many finance and monetary officials around the world view Yellen’s assumption as head of the Fed to mean continuity from Bernanke. This is good news for emerging markets like the Philippines. It gives them time to prepare their economies well for the eventual unwinding of the US bond-buying program that is sure to come.
But then again, the US federal government’s shutdown and impending debt default are feared to result in a crisis of global proportions.
