Canadian Prime Minister Stephen Harper, who can't choose a new central bank chief himself, has done the next-best thing: stacked the panel that nominates David Dodge's successor.
Since taking office in 2006, Harper's government has replaced eight of 12 Bank of Canada board directors, instead of reappointing them when their three-year terms expired. New faces include William Black, a former official in the ruling Conservative Party's Nova Scotia branch, and Douglas Emsley, who worked for a Conservative premier of Saskatchewan.
The board and Harper may decide to restore a tradition of selecting one of the bank's five deputy governors, or they could pick an outsider, as the previous Liberal Party government did for the first time with Dodge. Reshaping the panel may help Harper ensure that the next steward of the world's eighth- largest economy shares his priorities on taxes and spending, as well as monetary policy.
``There would be hints and nudges and winks'' if the panel were looking at someone Harper opposed, said Tim O'Neill, principal of O'Neill Strategic Economics in Toronto, and a former chief economist at the Bank of Montreal. ``The board doesn't want to be put in the embarrassing position of putting forward a name, only to have the government come back and say that's not acceptable.''
Hints and Nudges
Most leaders have more than hints and nudges at their disposal. In the U.K., Japan and Australia, the government has free rein in the selection. The White House nominates the Federal Reserve chairman, though the Senate must approve the appointment. The president of the European Central Bank is appointed by European Union leaders and finance ministers.
In Canada, the board submits a candidate to the Cabinet for approval. Dodge, 64, retires Jan. 31 at the end of his first seven-year term. The central bank says his replacement may be named as early as mid-September.
Economists say the contenders include Senior Deputy Governor Paul Jenkins, 59; Deputy Governor Tiff Macklem, 46; Mark Carney, a 42-year-old finance ministry official; and Toronto-Dominion Bank Chief Economist Don Drummond, 53. None has said publicly whether he's interested.
Whoever is chosen will inherit an economy that's enjoying the lowest jobless rate in three decades and a surge in commodity prices that has pushed the nation's currency to the highest since the 1970s.
Inflation
At the same time, inflation has exceeded the bank's 2 percent target since March, prompting a July interest-rate increase. The bank says inflation will peak at 3 percent in the fourth quarter and stay above target until early 2009.
Harold MacKay, a Saskatchewan lawyer who headed the panel that chose Dodge, said governments try to respect the board's independence. Still, choosing nominees and ``identifying skill sets isn't done in a vacuum,'' he said.
Harper's finance minister, Jim Flaherty, 57, is ``apprised of the progress'' in the joint appointment ``to ensure there is agreement based on the short list of candidates established by the board,'' Chisholm Pothier, Flaherty's spokesman, said in an e-mail message.
The 48-year-old Harper will likely want someone who supports his key policies, such as giving more money and power to provincial governments -- or at least doesn't publicly oppose them.
`Highly Decentralized'
``One of the keys to his decision, I think, will be whether the person he appoints will follow his ideological bent'' for ``a highly decentralized economic mechanism,'' Jerry Grafstein, a Liberal lawmaker who heads the Senate Banking Committee, said in an interview.
Dodge has commented on a wider range of policy issues than his predecessors, such as whether Canada's banks should be allowed to merge, raising the possibility the next governor may also be outspoken. The governor gave Harper a boost in February, telling a legislative hearing that an unpopular decision to tax income trusts for the first time fixed a ``bias'' in the tax system.
Harper hasn't spelled out how he may lean, and his office referred requests for comment to Flaherty's office. In a May 31 interview, the prime minister called the search ``autonomous'' and said governments in the past decade have backed the bank's goal of setting a numerical target for inflation.
``That's been an effective policy for the country,'' he said in the interview. ``We would want to take a look at what the views of a potential nominee would be in that regard.''
Deal-Breakers
Views on inflation may have been deal-breakers in the past. John Crow, governor from 1987 to 1994, opted against seeking a second term early in Paul Martin's tenure as finance minister, hinting in a book it was because he wanted a tougher inflation target than Martin, who stayed on as minister until mid-2002.
With the economy in the second-longest expansion since World War II, the best course would be to avoid anyone seeking big changes, said Christopher Ragan, a professor at McGill University in Montreal and a former adviser to the bank.
Staying the course would make Jenkins -- a 32-year central bank veteran -- the front-runner, said Warren Jestin, chief economist at Bank of Nova Scotia, Canada's second-largest lender.
Black, who joined the Bank of Canada board last October, didn't return a telephone message left by Bloomberg News, and Emsley declined to comment. Other board members declined comment or could not be reached.
