HONG KONG: Joseph Yam is stepping down on Oct 1 as chief executive of the city's de facto central bank, leaving a legacy of astute handling of Hong Kong's monetary and financial system even in the face of crises.

However, his 16-year tenure at the helm of the Hong Kong Monetary Authority (HKMA) was recently clouded by controversy surrounding the agency's handling of the Lehman Brothers mini-bond controversy.

Announcing Yam's departure, the government said in a statement that Hong Kong's monetary policy will not be affected after he steps down from office.

It praised Yam profusely for his service, but did not specify who his successor will be.

Financial Secretary John Tsang declined to comment on speculations that Norman Chan, currently director of Chief Executive Donald Tsang's office, will be tapped to replace Yam and head the HKMA.

It is unclear where Yam is headed after leaving HKMA, but mainland magazine Caijing claimed that he may provide advisory work to the People's Bank of China (PBoC), the nation's central bank.

Caijing's website cited an unidentified source as saying that PBoC may ask Yam on board as an advisor after he leaves the HKMA. The report has not been independently confirmed.

Yesterday's announcement follows media reports early this year about Yam's imminent departure.

The HKMA has been severely criticized recently by both legislators and investors for failing to provide investors with adequate warning on the risks associated with complex structured investment products, specifically the so-called mini-bonds issued by Lehman Brothers.

The authority was also criticized by some legislators for the way it invests the Exchange Fund, which is used to defend the local currency against speculative attacks and to back the currency's peg to the US dollar.

The Exchange Fund incurred a HK$74.9 billion loss last year from its investment in equities as global stock markets slumped in the face of global recession.

Some analysts said the incoming HKMA chief faces a host of daunting challenges.

Standard Chartered Bank economist Kelvin Lau said the next HKMA chief needs to bolster confidence in the Hong Kong dollar and financial sector while trying to revive lending to get the economy going.

Since the HKMA's establishment in 1993, Yam has headed the city's de facto central bank and is credited for a number of bold and innovative initiatives in defense of the local monetary and financial system.

For instance, he engineered the defense of the Hong Kong dollar against speculative attacks at the height of the Asian financial crisis in 1997-1998, using the Exchange Fund's resources.

In one of his boldest moves as HKMA chief, Yam was mainly credited for the government's purchase of some $15 billion worth of stocks in 1998 to fend off attacks on the Hong Kong dollar through the local stock market.

Then US Federal Reserve Chairman Alan Greenspan criticized the Hong Kong government's direct intervention in the local equity market. The HKMA was later vindicated as it successfully beat off attacks on the local currency even as the government made money from its unprecedented investment in the equity market.

Yam said he was honored to serve Hong Kong people and he expressed confidence that the HKMA would continue to meet whatever challenges it might face in the future in the best interests of the people of Hong Kong.

(HK Edition 05/20/2009 page16)