When pride comes before a fall from grace

South China Morning Post  |  Nov 3, 2007

By Sin-ming Shaw

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong will step down in 2009 not with a bang but with a whimper. The news that he was going, unceremoniously leaked by an anonymous government source, was a powerful signal that his presence at the HKMA is no longer required, and he is not irreplaceable.

It is rare for Hong Kong, a city usually generous to a fault, to treat in such a manner a man who many consider a hero for defeating global currency speculators in 1998.

Hong Kong's civil servants must retire at 60. Alan Greenspan, the former chairman of the US Federal Reserve - to whom Mr Yam is known to have wanted to be compared - retired last year aged 79 after having served four US presidents for a total of 18 years. Mr Yam will be 61 when he steps down, after having served 16 years, thus failing to beat Mr Greenspan on both counts.

Mr Yam had argued, in defence of his extravagant salary package (around six times that of Mr Greenspan), that his position should not be governed by civil service rules regarding pay or length of service. He may have got his financial rewards, but he has, nevertheless, failed to obtain his longed-for Greenspan-esque glory.

How is it that the news of the departure of Mr Yam, who has been feared and revered by so many for so long, was leaked to the public in such a humiliating way? Here are a few clues.

Over the years, he has not discouraged the widespread impression that he has scant intellectual respect for his boss, Donald Tsang Yam-kuen, who is now the chief executive and was formerly the financial secretary, who has statutory authority over the HKMA. That was too arrogant by half.

Second, Mr Yam made few bones about claiming credit for his "victory" against the speculators in 1998. In fact, many in the private sector thought - correctly - that Mr Yam should have been fired for his initial incompetence. After realising his mistakes, he finally unveiled his now-famous "seven measures" - suggested to him a year earlier by respected local economists. Without those measures, he would have pointlessly exhausted Hong Kong's reserves in five more trading days.

The first paragraph of the official announcement at the time all but acknowledged this. It said: "The HKMA introduced ... a package of technical measures to further strengthen the currency board arrangements and make them less susceptible to manipulation."

The attacks on the Hong Kong dollar and the massive sell-off of Hong Kong stocks, even by the most conservative pension funds around the world, came about precisely because every professional knew about this "susceptibility".

Baptist University professor Tsang Shu-ki, a currency expert, tried to alert the HKMA as early as 1996 to the fact that the currency system was vulnerable.

Global investors correctly concluded that Mr Yam was providing them with a virtual ATM machine to make a quick profit.

Then there is the fact that, in carving out a de facto empire at the HKMA, Mr Yam began to act as if the life and death of the Hong Kong dollar rested on his expertise alone.

To circumvent civil service rules, he floated the idea that, as head of the HKMA, he was also a fund manager and therefore should be paid as such. It was easy to get what he wanted: the Exchange Fund Advisory Committee, which rubber-stamped his package, is made up mainly of bankers regulated by the authority.

The manner in which all this was done alienated him from many senior financial professionals in the private sector, as well as his cohorts in the government.

Students of classics, however, will not be surprised by Mr Yam's fate. To borrow a famous Greek saying: Those whom the gods destroy, they first make proud.

Sin-ming Shaw, a private global investor, was a guest scholar at Princeton University in 2006/2007


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