Being a country’s finance minister may appear to be something of a poisoned chalice in the current economic environment, but there are still plenty of politicans doing sterling work in steering their countries through the aftermath of the global crisis. The Banker salutes the finest of these.

Gheorghe Ialomitianu, finance minister of Romania

Finance minister of the Year, Europe

Gheorghe Ialomitianu, finance minister of Romania

When a cabinet reshuffle in September 2010 ushered in Gheorghe Ialomitianu as Romanian’s third finance minister in just two years, there were fears that the government was losing the will to continue with a tough International Monetary Fund (IMF)-backed fiscal retrenchment package. But Mr Ialomitianu says his previous role on the finance and banking committee in the Romanian chamber of deputies had left him well aware of the need to keep on track.

“The most important objective I have imposed at the Ministry of Public Finance, but also across government, was to accomplish the commitments agreed upon with the IMF, the European Commission and the World Bank, which has led to us regaining trust on the internal and international financial markets,” says Mr Ialomitianu.

The government successfully concluded the IMF programme in March 2011 without drawing down a final E1bn tranche of funding, and signed a new precautionary standby deal worth E3.5bn. Mr Ialomitianu does not intend to draw down any funds under this arrangement, which is instead designed to reassure market sentiment.

He has certainly made significant progress toward that aim. In June 2011, the country returned to the Eurobond market for the first time since the financial crisis began, with an issue for E1.5bn that priced inside the spread on Spanish government bonds. A month later, ratings agency Fitch upgraded Romania’s sovereign rating to investment grade, at a time when some eurozone sovereigns were heading in the opposite direction.

These successes justify a painful programme of public sector pay cuts and redundancies. The economy has struggled to return to growth in the face of such budget tightening, and the eurozone crisis could cause further damage, but Mr Ialomitianu will not be deflected. The government has frozen public salaries for 2012 and increased value-added tax from 19% to 24%, with the intention of exiting the EU’s Excessive Deficit Procedure by the end of 2012.

“A lesson which should be learnt from the international economic crisis is that politicians must take decisions more firmly, if such decisions can reduce the effects of this crisis and avoid slippages which generate macroeconomic imbalances. Let us not forget that in certain member states, the postponement of taking such decisions led to much harsher subsequent measures,” says Mr Ialomitianu.

He has found some money to stimulate economic growth, mainly by investing in infrastructure projects that are likely to generate employment and by providing guarantees for bank lending. The next steps in the reform process focus on state-owned enterprises and the healthcare sector.

“With respect to the sale of state assets, we are not in a situation of having to sell these assets at any cost, but we encourage the privatisation of state companies,” he says.

Juan Carlos Echeverry, finance minister of Colombia

Finance minister of the Year, Americas

Juan Carlos Echeverry, finance minister of Colombia

Juan Carlos Echeverry is often portrayed as an energetic optimist, and he has had good reasons to be upbeat. Colombia has made huge progress in recent years and has passed a few milestones in the past 12 months. The country’s unemployment rate has been pushed below 10%, foreign direct investment is at a record high, and all
three main international rating agencies have elevated the country’s sovereign debt to investment grade.

Colombia’s Ministry of Finance estimates that exports will have reached $50bn in 2011 and that they will be $60bn for this year thanks to the new free-trade agreement with the US and trade within Latin America. Further, a tax reform has increased fiscal revenues by 25% and anti-corruption policies resulted in an estimated $500m gained from less illicit activities, according to the ministry.

“We want to pass another tax reform and a pension reform [in 2012],” says Mr Echeverry. “I think that reforming has to be a way of life and not a package. So you have to keep on reforming; if you stop reforming, you start piling up problems that will explode at some time.” And taxes are not the only area where new legislation will be implemented. As of

December 2011, a new law facilitating public private partnerships was about to be passed to help improve Colombia’s infrastructure. A development bank that will support infrastructure projects is also being created.

The economic resurgence that Colombia is experiencing stands in stark contrast with the country’s recent past, which had been characterised by dire security issues and drug trafficking. Progress continues to be made on this front too: the FARCs – the revolutionary armed forces of Colombia – and criminal bands continue to see their power, numbers and presence in the country reduced. “[Their numbers] have been halved in the past 10 years from 15,000 to probably 8000 [now],” says Mr Echeverry. “Our goal should be to eliminate [their] capacity to interfere with the economy. Narco trafficking in total produces 1% of [gross domestic product] right now, down from 8% in the 1980s. The idea is to keep it going down.”

Mr Echeverry’s goals for 2012 are as numerous as they are ambitious. The most crucial ones are to reduce unemployment further to 9%, keep gross domestic product growth at 5%, and reduce the fiscal deficit to about 2%, from the 3.3% expected for the end for 2011. How likely is it that these targets will be met? “As of now, [the] unemployment [goal] has a probability of 90%; growth, 80%; fiscal deficit, 75%. My view has always been optimistic. The role of the minister of finance is not just doing his job, it is [also] creating a story in the minds of entrepreneurs and households that is believable, that is serious, but that is also positive and creates a good sentiment about themselves and about the economy,” says Mr Echeverry.

Yousef Kamal, finance minister of Qatar

Finance minister of the Year, Middle East

Yousef Kamal, finance minister of Qatar

Yousef Kamal has been an instrumental force in Qatar’s meteoric growth, which has seen it record some of the highest growth rates in the world since 2005.  Ranked as the world’s fastest-growing economy in 2010, Qatar achieved a gross domestic product (GDP) growth rate of 18.5%. Its GDP is forecast to grow by a further 19% this year.

Robust oil prices and the expansion of Qatar’s liquefied natural gas production led to a 25% increase in spending to $32.4bn during the 2010-11 budget year. At $35bn, the state budget is even bigger for 2011-12.

But with hydrocarbons set to account for a decreasing proportion of Qatar’s GDP over the next few years (falling from an estimated 64% in 2011 to 51% by 2016), Mr Kamal is placing greater emphasis on the country’s economic diversification policy – with Qatar’s non-hydrocarbon GDP projected to grow by 8.5% over the next five years.

Some 40% of the 2011-12 budget – the equivalent of $14bn – is allocated to infrastructure projects such as roads, ports, airports and sewage and water treatment. Qatar’s winning bid to host the 2022 football World Cup has served as a further catalyst for increased infrastructure expenditure in the country – estimated at $65bn by the Institute of International Finance.  

Mr Kamal is keen to see the private sector play a key role in financing and developing these projects. In June 2011, he drafted a private public partnership law aimed at boosting the participation of the private sector. “The World Cup should serve as a catalyst to increasing the private sector’s contribution to the total GDP of the state of Qatar,” says Mr Kamal.

Foreign investment has also been encouraged by the Qatari Ministry of Finance’s implementation of a new tax law that incorporates a flat corporate tax rate of 10%. Under the previous tax law, rates could vary from zero to 35%.

Conscious that the government’s expenditure programme is leading to significantly higher levels of liquidity in the system, Mr Kamal has kept a lid on inflation in 2011 through the issuance of both bonds and Treasury bills. These have served to reduce liquidity in the economy by $13.7bn and the minister is targeting inflation in the range of 4%.

The country’s financial sector is also making efforts to diversify into new business lines. The Qatar Financial Centre Authority – the body responsible for spearheading Doha’s efforts to become a regional hub for financial institutions from across the world and which is currently home to 145 institutions – is currently overhauling its strategy to focus on asset management, reinsurance and captive insurance.

Qatar now ranks as the world’s richest country, with the highest per capita GDP, which is estimated to be $72,000 in 2010, while roughly 65% of insurance premiums are currently reinsured outside the country.  

The country’s credit default swap spreads – the cost of protecting against losses on debt sold by Qatari companies – are trading at 95 basis points to 104bps, the lowest in the Gulf.

Abdoulaye Diop, finance minister of Senegal

Finance minister of the Year, Africa

Abdoulaye Diop, finance minister of Senegal

Unlike many other fast-growing African countries, Senegal has achieved its economic expansion of 4% to 5% in the past two years without having an abundant supply of natural resources.

Instead, it owes its buoyancy largely to deep reforms and fiscal prudence over the past decade. Its ratio of debt to gross domestic product (GDP) stood at 41% in 2011, having been cut from 78% in 2000. Tax revenues have grown significantly and government arrears have been slashed.

The result is that Senegal is widely viewed as having the most sophisticated and open economy in Francophone west Africa. It is also the richest among such countries, with a GDP per person of about $1100.

Senegal’s reputation for good economic management was demonstrated last May when it issued a $500m Eurobond. The deal, the country’s first major international bond, attracted more than $2.4bn of orders despite being issued when the eurozone crisis had just started playing havoc with global markets.

Abdoulaye Diop, Senegal’s finance minister since 2001, can take much of the credit for this robustness. He has been at the forefront of the government’s efforts to reform the economy and improve infrastructure, which he believes is a prerequisite for the development of the private sector. The Eurobond, issued to finance a highway linking capital city Dakar to neighbouring Mali and to boost electricity production, exemplified this.

As a result of such policies, Senegal’s service sector, so vital given the absence of major manufacturing and extractive industries, has developed rapidly of late. Dakar is now a regional hub for telecommunications – it hosts a growing number of call centres for European companies – and banking. “Many international organisations move their [west African] headquarters to Dakar,” says Mr Diop.

There are fears that Senegal’s long-standing political stability is under threat. Mass protests broke out in Dakar in June amid discontent over 85-year-old president Abdoulaye Wade’s desire to run for a third term in next month’s elections, which his opponents say he is constitutionally barred from doing (he claims otherwise, citing a technicality).

Critics say the government’s wish to demonstrate largesse in the run up to the polls is the reason the budget deficit widened to 6.9% last year from 4.5% in 2010.

Mr Diop insists, however, that the government has not lost any of its fiscal discipline and that the deficit will fall to 4% by 2015. He also says growth can rise to 7% by that year.

He might not be around to see this through; analysts believe the cabinet will change completely should one of Mr Wade’s opponents emerge victorious in February. If so, Mr Diop’s successor will inherit an economy with solid foundations and little stopping it becoming a major emerging market in the next decade.

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