Rodrigo Rato: exiting through the revolving door
The former head of the IMF and Spanish economy minister has just landed a job at Telefnica, despite facing a judicial investigation into mismanagement while he was chairman of failed lender Bankia.
Given Rodrigo Ratos previous form and his current predicament, the news that Telefnica has appointed him to the advisory boards of its European and Latin American businesses raises new concerns about transparency and corporate governance in Spain.
Rato - who has also served as head of the International Monetary Fund and as Spain’s economy minister - will help “reinforce the global vision of Telefnica”, the country’s largest telecommunications company said after announcing the appointment on January 4.
Readers will remember that it was Rato who oversaw the privatisation of Telefnica back in 1997.
Ratos hiring by Telefnica comes less than a month after he was summoned before a Spanish court in relation to allegations of wrongdoing during his tenure as chairman at state-rescued lender Bankia.
Rato, ousted from Bankia when it was nationalised in 2012, and 32 other Bankia board members are the subject of an investigation into fraud, price-fixing, and falsifying accounts.
Bankia was formed in 2010 from the merger of seven unlisted savings banks, led by Caja Madrid. Rato and other executives, under political pressure, listed the company in 2011. On May 9, 2012, the government nationalised Bankia, bailing it out to the tune of 18 billion.
Rato appeared in a private court hearing on December 20 and denied any wrongdoing. Investigating magistrate Fernando Andreu has, so far, not brought charges against anyone and could still drop the case, which was brought to the High Court by the political party UPyD.
Born into a wealthy family in Asturias, Rato knows a thing or two about the ups and downs of banking. His father, a fervent supporter of dictator Francisco Franco, headed two small provincial banks, but was jailed in the late 1960s for salting cash away in Switzerland. But the general pardoned him in 1971, allowing him to recover the family fortune.
That year, Rato earned a law degree from the Complutense University of Madrid, moving to the United States to attend the University of California where he completed an MBA in 1974.
After the death of Franco, Rato joined the Alianza Popular, a grouping of social and political conservatives founded by former members of Francos last government and the precursor of todays Partido Popular PP. Rato won election to Congress in1982.
Fourteen years later, the PP came to power after cutting a deal with the right-wing Catalan nationalist party Convergncia i Uni CiU to obtain a ruling majority.
Rato became economy minister in the government of Jose Mara Aznar and embarked on a campaign to get Spain into the euro zone.No friend of the welfare state
To reduce the budget deficit below the 3 percent required by the European Central Bank to allow Spain to join the single currency, Aznars government froze civil servants wages and cut public works spending. By 1999, the deficit had fallen to 1.4 percent of GDP from 4.8 percent, when Aznar became prime minister.
Once Spain had adopted the currency in 2002, the country boomed. Rates plunged, and Spains construction sector effectively took over the economy.
During this time, aside from supporting the making of religion a compulsory subject in secondary schools, Rato worked hard to erode the gains made in creating a welfare state between 1982 and 1996, dramatically reducing social spending as a way of eliminating the public deficit and overseeing the most austere social budget of any EU government.
The elimination of the deficit came at huge social cost. The Spanish welfare state was already weaker than its EU counterparts. During Ratos time as economy minister between 1996 and 2004, pensions and health expenditures were cut savagely: the deficit with the EU-15 average increased to 21 percent, while the deficit of public medial care expenditures to the EU-15 rose by 30 percent.
When Rato was given the job of running the IMF there was some puzzlement. The agency has a history of appointing managing directors for their political expediency rather than their credentials for the job. Ratos main strengths appear to have been that he is European, and a European has always run the IMF, that Spain supported the war against Iraq, thus guaranteeing Washingtons backing, and that he was from a European country that was neither France nor Germany, which had provided the last two IMF bosses.
Rato took over as managing director in May 2004, two months after the PP lost the general election, only to resign three years later, half way through his tenure, on the eve of the global financial meltdown.
Last year, a veteran economist at the IMF accused the global lender of suppressing information on difficulties in dealing with the global financial meltdown and euro zone crisis.
In a resignation letter to its board and senior staff, dated June 18, Peter Doyle said the IMF’s failures in issuing timely warnings for both the 2007-2009 global financial crisis and the euro zone crisis were a “failing in the first order” and “are, if anything, becoming more deeply entrenched.”
The IMF has acknowledged some of the failures cited by Doyle in reports in 2009 and in 2011 that homed in on mistakes in spotting the roots of the global financial crisis during Ratos tenure and for not going far enough in warnings to policymakers of the impending crisis.Shareholder value
Meanwhile, the only option open to savers and pensioners who have seen their money wiped out by investing in Bankia is through redress in court rather than waiting for an increasingly unlikely official inquiry.
About 350,000 stockholders will share the pain of the bank’s European bailout, many of them bank clients who were sold the shares through an aggressive marketing campaign for its stock market flotation in 2011. Bankia, alongside other Spanish banks, sold billions of euros in preference shares and subordinated debt to high street clients, many of who say they were tricked into parting with their savings.
Neither of the two main political parties want to push for a full investigation into Bankia’s demise, which could draw attention to their own role in a debacle that has driven Spain to the brink of a full international rescue.
Bankia has been removed from Spain’s IBEX-35 blue-chip index until the results of a recapitalisation are clear. Its share price has tumbled 83 percent over the past year.
With a record like this, its hard to imagine why anybody would want to give Rato any position of responsibility, but then Telefnicas boss Csar Alierta and Rato go back a long way. In 2000, when Rato was Economy Minister, he put Alierta’s name forward to take over from Juan Villalonga, who had fallen out with Aznar.
Of course Ratos sinecure is still far from secure, and much depends on how the judicial investigation into Bankia develops, and how the media cover it.© Iberosphere: Spain News and Portugal News - Information and Analysis