Central Bank President Backtracks on His Pay Raise

Velarde, Julio -BCRP-2014Peru’s Central Reserve Bank President, Julio Velarde, backtracked on his pay raise on Wednesday, following criticism from President Ollanta Humala.

President Humala criticized the head of Peru’s Central Bank over the wage increase, a move that sources in the monetary authority reportedly said could hurt the perception of its independence.

Humala sent a letter to Central Bank President Julio Velarde on Tuesday, saying that he disagreed with the board’s decision to increase the governor’s salary by 6% to 44,096 soles (approximately US$15,000) a month from the current 41,600 soles.

“I would like to stress my deep disagreement with this decision, taking into consideration that you are the highest paid civil servant in the state,” Humala said in the letter to Velarde, which was posted online by daily El Comercio and other media outlets.

Humala called on the Central Bank to reverse its decision.

“I consider it recommendable for the good image of the BCR [the Central Reserve Bank], and consistent with the salary practices in the rest of the Peruvian state, that you revert the mentioned agreement made bythe board or that you don’t apply it,” Humala said.

In a statement following Velarde’s decision to not take the increase, the Bank said that its “maximum authority had made a conscious decision that what is important at this time is the solution of the country’s economic problems and “not waste time on sterile debates.”

Humala has been criticized earlier by opposition politicians, who point to his decision to double the salary of ministers to 30,000 soles a month.  In the 1990s, President Fujimori raised salaries across the board in government institutions to attract experienced personnel, many of them returning from key positions abroad. This policy was held during the Toledo administration but President Garcia in 2006 slashed top salaries, which led to the resignation of many high-ranking public servants.

The letter reportedly caught the Central Bank off guard, creating frustration among its employees. El Comercio reported that unnamed sources within the Central Bank were mainly concerned about the international repercussions of Humala’s letter.

The sources said that a Peruvian president has never challenged the Central Bank on  salaries before. The Central Bank reviews its salaries every two years, according to El Comercio, in line with inflation.

Peru’s inflation has been increasing about 3% per year.

Finance minister Alonso Segura said in a press conference that the President’s letter did not affect the BCR’s autonomy, and was the President’s response to a letter from the Bank advising of the pay increase.

Segura said it would be a mistake to think the President was acting like a demagogue on this issue, “or worse still, to compare this case with the wage slashing of high-ranking officials in the government that Alan Garcia authorized at the beginning of his second administration.”

Peru’s Central Bank is widely regarded as one of the most professional in Latin America. Velarde has received accolades for his handling of the bank during the 2009 global financial crisis.

The Central Bank in Peru is independent of the government.

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