As Malaysia central bank chief exits, successor remains mystery

Malaysia's Bank Negara Governor Zeti Akhtar Aziz arriving at an event announcing revisions to the fiscal budget in Putrajaya, Malaysia, on Jan 28, 2016.
Malaysia's Bank Negara Governor Zeti Akhtar Aziz arriving at an event announcing revisions to the fiscal budget in Putrajaya, Malaysia, on Jan 28, 2016. PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - Malaysia's central bank Governor Zeti Akhtar Aziz will oversee her last interest-rate decision on Wednesday before she exits from an institution she's led for 16 years. Investors are still in the dark about who will replace her in May.

Dr Zeti's leadership began in turmoil, when she briefly acted as governor in the midst of the Asian financial crisis, and will be ending with the nation gripped by what may be the biggest political impasse since independence in 1957.

The rate decision itself is an easier call: All 20 economists surveyed by Bloomberg News forecast no change to the benchmark, now at 3.25 per cent. Dr Zeti has kept the rate there for nine meetings.

A no-nonsense central banker with a doctorate in economics from the University of Pennsylvania, Dr Zeti, 68, has proven one of the monetary policy makers least likely to surprise markets - she has changed the key rate just twice in five years, compared with 10 times by her Australian counterpart.

Known to strike fear into her staff with a stern look, Dr Zeti emerged as a thorn in the side of Prime Minister Najib Razak, as the central bank urged criminal charges against a troubled state-owned fund he partly oversees. The attorney general rejected those recommendations, and both the premier and the fund have consistently denied wrongdoing.

Mr Najib has given no indication who he will pick to replace Dr Zeti when her term ends in April, threatening investor confidence in Malaysia, economists say.

"The fear now is that it's going to be someone from outside who doesn't have the same kind of central banking experience," said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch, who hails from Malaysia. "It's not a process that really builds up confidence."

Aides to Mr Najib said earlier this month there is no indication when the announcement on the next governor would be made. The central bank didn't reply to an e-mail seeking comment on updates to the succession planning process.

Dr Zeti is one of Asia's longest-serving central bank heads, having taken office in 2000, two years after her stint as acting governor in 1998 amid a then-controversial move to peg the ringgit to deal with capital outflows.

A governance committee under the auspices of Bank Negara Malaysia has the responsibility of vetting internal and external candidates before Mr Najib's government picks one to be endorsed by the king.

Dr Zeti has said there is a succession plan within the central bank, where there are capable people to replace her, and that her successor shouldn't be a politician. She had hoped the committee would conclude its assessment at least three months before she was scheduled to leave to allow for a proper transition.

Apart from the three deputy governors at the bank who could potentially be promoted, people familiar with the matter said late last year candidates mooted to replace Dr Zeti included Mohd Irwan Serigar Abdullah, secretary general of the Treasury; Awang Adek Hussin, the ambassador to the US and banker-turned-government minister Abdul Wahid Omar.

For all the political angst, Malaysia's economy continues to chug along with growth in excess of 4 per cent, handsomely outpacing countries with similar levels of per-capita output, such as Russia or Argentina.

The uncertainty over Ms Zeti's replacement risks distracting the central bank from its focus on managing the economy as a recent rebound in oil prices and the ringgit provides Malaysia with an opportunity to replenish foreign reserves, said Ng Weiwen, an economist at Australia & New Zealand Banking Group Ltd. in Singapore.

"Bank Negara Malaysia is one of the better central banks in this region, so it has to actually maintain this kind of perception and aura," Mr Ng said. "Otherwise it could risk some confidence deficiency, especially if the reserves" are among the lowest in the region, he said.