Who governs amidst the current Policy Chaos?

07 Jun 2019 | Prof. Jannie Rossouw
Policy Chaos threatens SARB

The word “chaos” has many synonyms – for instance, confusion, pandemonium, disarray and turmoil. All these words describe the ANC’s current policy stance on a number of matters, including the SA Reserve Bank.

A modern democracy rests on the division of powers between the legislative, the executive and the judiciary. This is the principle foundation of all modern, successful countries.

Under the leadership of its secretary general, Ace Magashule, the ANC clearly does not understand this basic principle. In Mr Magashule’s mind, the ANC as the majority party clearly usurps the roles of the legislative and executive branches of government.

With this misconstrued role for the ANC in mind, Magashule pronounces on important policy matters such as the structure and the policy mandate of the SA Reserve Bank (SARB).

The SARB is one of very few institutions in the public domain that escaped state capture during the mad reign of the Zuma administration. In the mind of Magashule, this must have been an oversight that he wishes to change from Luthuli House.

There are two debates about the future of the SARB. One is about its ownership structure and the fact that it has private shareholders.

The SARB is one of only eight central banks with shareholders. Other central banks in a similar position are in Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey. The shareholders have no influence over management or policy decisions in the SARB and receive a (taxable) dividend of 10c per share per annum. This dividend is prescribed by law. The nationalisation of the central bank will therefore really not make any policy difference.

The real debate is about the policy mandate of the SARB. The mandate is prescribed in the Constitution as the protection of the value of the rand, in the interest of balanced and sustained economic growth in South Africa. We all want economic growth in order to eradicate South Africa’s unemployment problem. However, these objectives cannot be achieved by changing the central bank’s mandate.

The bank’s mandate is embodied in an inflation target, implying that it uses monetary policy to keep inflation between 3% and 6% per annum. The central bank has been remarkably successful in discharging this policy objective, with average inflation around 5% per annum since adoption of the target.

Ramaphosa must stand up

Under the stewardship of Magashule the ANC as majority party wants to expand this mandate to include aspects such as economic growth and the eradication of unemployment.

Adoption of the approach advocated under the leadership of Magashule will take South Africa back to the bad old 1980s of the previous century. In the 1980s, the SARB was subservient to the governing National Party.

On occasion in the 1980s, the bank was even misused in an attempt to win an election for the National Party. Things really worked out very badly, with average inflation of nearly 15% per annum. At some point, inflation even exceeded 20% per annum for a short period of time.

Any initiative to take South Africa and the SARB back to this dark history should be opposed. In the long run, people get very poor under conditions of sustained inflation. For evidence in this regard, simply look at Zimbabwe: Inflation went to 4.8 billion per cent per annum and widespread poverty and hardship followed.

The independence from political interference was subsequently restored for the SARB and is now enshrined in the Constitution. Magashule’s attempt is not the first to erode this positon, as the Public Protector, Advocate Busisiwe Mkhwebane, tried a similar approach. On that occasion, her report was overturned after a legislative process.

It is now time for Cyril Ramaphosa, the president of the Republic of South Africa, to stand up and give clear leadership. On this occasion, Ramaphosa cannot hide in his office or in a cavalcade of expensive black vehicles while chaos reigns. South Africa desperately calls for leadership by its real leader, not by the leader of the ANC in Luthuli House.

As a first step, Ramaphosa must consult on three executive appointments or reappointments at the SARB. The first matter is to fill the vacancy left by the resignation of Deputy Governor Francois Groepe. This position has been vacant and neglected since February 2019.

Position of governor

In addition, the term of office of Deputy Governor Daniel Mminele expires on June 30, 2019. This requires urgent attention.

Most pressing is the position of the governor. The appointment of Lesetja Kganyago expires in November 2019; only six months away. South African and international investors need certainty about the position of the governor of the SARB.

The reappointment of Kganyago and Mminele will appease investors and financial markets. This will maintain financial stability and reinforce certainty about South Africa’s monetary policy focus. This will go a long way in supporting economic growth and the eradication of unemployment.

Ramaphosa must stand up and be the president of the republic. If he fails the country on this occasion, Magashule will soon be the de facto president of South Africa, ruling the country in a most undemocratic way from Luthuli House.

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