BU­SISIWE’S BIZARRE OUT­COME

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Pub­lic Pro­tec­tor Bu­sisiwe Mkhwe­bane’s un­ex­plained di­gres­sion into mone­tary pol­icy and the Con­sti­tu­tion this week is not the only strange out­come of her re­port on the 1985 bailout of Bankorp. If the re­port sur­vives the sev­eral re­view ap­pli­ca­tions al­ready an­nounced, it could force the Special In­ves­ti­gat­ing Unit to go af­ter a va­ri­ety of com­pa­nies men­tioned in the in­fa­mous Ciex re­port, in­clud­ing San­lam and Ned­bank.

Although the bulk of Mkhwe­bane’s re­port deals with Bankorp, which be­came part of Absa, its first find­ing is that gov­ern­ment “failed to im­ple­ment” the Ciex re­port.

The Bankorp bailout is only a small part of that re­port and Mkhwe­bane ex­plic­itly or­ders the Special In­ves­ti­gat­ing Unit to in­ves­ti­gate the other al­le­ga­tions of mis­ap­pro­pri­ated funds cited by Ciex.

This in­cludes pur­su­ing San­lam for the Absa shares it got in re­turn for Bankorp in 1992, as well as var­i­ous other al­le­ga­tions of mis­ap­pro­pri­a­tion dur­ing apartheid.

Par­lia­ment and the SA Re­serve Bank are tak­ing Mkhwe­bane’s re­port on re­view for or­der­ing that Par­lia­ment must amend the Con­sti­tu­tion to change the Re­serve Bank’s man­date.

Re­serve Bank spokesper­son Jab­u­lani Sikhakhane would only say that “the Re­serve Bank’s lawyers are work­ing full tilt on pre­par­ing the ap­pli­ca­tion”.

Absa is also tak­ing the re­port on re­view in­so­far as it or­ders the state to get R1.125 bil­lion out of the bank.

Mkhwe­bane’s re­port does not, how­ever, ac­tu­ally give rea­sons for ei­ther of these or­ders.

Her pre­lim­i­nary re­port in De­cem­ber had only one re­me­dial ac­tion: that Pres­i­dent Ja­cob Zuma “con­sider” call­ing a new commission of en­quiry into the now 30year-old bailout scan­dal.

Ac­cord­ing to this week’s fi­nal re­port, the pres­i­dent re­jected this op­tion.

OF­FI­CIAL IN­QUIRY BY EX­PERT PANEL

Mkhwe­bane in­stead im­plic­itly re­jected the con­clu­sion of the pre­vi­ous of­fi­cial in­quiry into the bailout by a Re­serve Bank ex­pert panel led by Judge Den­nis Davis in 2000.

The panel had found the bailout to be gra­tu­itous and un­law­ful, but that Absa was not li­able for it af­ter it ac­quired Bankorp in 1992.

Davis’ panel con­cluded that Absa paid “fair value” for Bankorp, which in prac­tice meant it paid for the value of the bailout.

The ben­e­fi­ciary was re­ally the seller of Bankorp – San­lam, which had not been de­mu­tu­alised at the time.

This means that, if you wanted to re­cover the money, you would have to get it from the thou­sands of peo­ple who were then the pol­i­cy­hold­ers, which is im­pos­si­ble.

“Judges can be wrong, but we’d like to know why,” Davis told City Press this week.

“You’ll find noth­ing in the [Pub­lic Pro­tec­tor’s] re­port that says we were wrong. She may be able to pro­duce some other doc­u­ment with in­tri­cate cal­cu­la­tions as to why we were wrong, but I have not seen one.”

In re­sponse to de­tailed ques­tions, Mkhwe­bane’s of­fice this week in­stead sent City Press a generic state­ment de­fend­ing her le­gal power to make the or­ders she made.

Or­der­ing Par­lia­ment to change the Con­sti­tu­tion will trig­ger a long process, in­clud­ing pub­lic con­sul­ta­tions, mak­ing it un­true that she her­self is chang­ing the Con­sti­tu­tion, read the re­sponse.

Fol­low-up ques­tions were not an­swered.

BU­SISIWE’S ‘MONE­TARY RE­FORM’

At some point this year, Mkhwe­bane was con­vinced to ex­pand her in­ves­ti­ga­tion to “look into re­form of the repub­lic’s mone­tary sys­tem”.

Noth­ing re­motely like that ap­peared in the pre­lim­i­nary re­port she signed off in De­cem­ber, and it had not been part of the orig­i­nal com­plaint filed by ac­tivist Paul Hoff­man in 2011.

Mkhwe­bane’s at­tempt to change the Re­serve Bank’s man­date has di­vided even those on the left, who, in principle, ac­tu­ally sup­port a change to the Re­serve Bank’s anti-in­fla­tion man­date.

The SA Com­mu­nist Party (SACP), a long­time pro­po­nent of less re­stric­tive mone­tary pol­icy, this week re­jected the achieve­ment of this goal by “un­con­sti­tu­tional” means, say­ing it un­der­mined the sep­a­ra­tion of pow­ers.

The SACP noted that Mkhwe­bane’s re­port “lends weight to the en­tirely spu­ri­ous anti-bank cam­paign that is being spear­headed by the Gupta ide­o­log­i­cal ap­pa­ra­tus”.

IN­FLA­TION TAR­GET­ING

Other tra­di­tional en­e­mies of the Re­serve Bank were less guarded. Cosatu and the newly formed SA Fed­er­a­tion of Trade Unions wel­comed the re­port in line with their op­po­si­tion to the Re­serve Bank’s strict man­date of in­fla­tion con­trol.

In­fla­tion tar­get­ing has been con­tentious for years be­cause of the damp­en­ing ef­fect it has on growth of em­ploy­ment.

Con­ven­tional wis­dom dic­tates that the long-term ef­fects of high in­fla­tion are far worse than the ef­fect of high interest rates, but this has been a sub­ject of re­cur­ring de­bate among econ­o­mists.

It is, how­ever, not re­ally clear how Mkhwe­bane in­tends South Africa’s mone­tary pol­icy to change.

Her or­der to Par­lia­ment is to cut the sec­tion of the Con­sti­tu­tion that gives the Re­serve Bank its man­date to “pro­tect the value of the cur­rency”.

This seems like an at­tempt to end in­fla­tion tar­get­ing – the pri­mary of­fi­cial goal of the Re­serve Bank since 2000.

Noth­ing in Mkhwe­bane’s re­port, how­ever, takes is­sue with in­fla­tion tar­get­ing.

Pass­ing com­ments in the re­port in­di­cate that she ac­tu­ally wants Par­lia­ment to some­how largely na­tion­alise the bank­ing sec­tor.

She ar­gues that it is the Re­serve Bank’s “lender of last resort role” that is prob­lem­atic.

This is seem­ingly based en­tirely on the bailout of Bankorp, which Mkhwe­bane says demon­strates “that the sta­tus of the SA Re­serve Bank as the lender of last resort has com­mer­cial ben­e­fits only in re­spect of the fi­nan­cial sec­tor market”.

De­spite this, the con­sti­tu­tional word­ing that Mkhwe­bane pro­poses does not ob­vi­ously af­fect the lender-of-last-resort func­tion of the Re­serve Bank.

Mkhwe­bane’s re­port also as­serts that a bank­ing sys­tem would better serve the peo­ple if “gov­ern­ments take sole power in cre­at­ing money through the es­tab­lish­ment of state banks”.

She refers to “lead­ing au­thors” for this con­clu­sion, but would not say who these lead­ing au­thors were.

BACK­GROUND

A bailout, or “lifeboat”, was given to Bankorp in the form of a con­ces­sion­ary loan from the SA Re­serve Bank with interest of only 1%.

This was used to buy gov­ern­ment bonds, which, in those cri­sis-rid­den days at the end of apartheid, paid 16% interest.

The net ef­fect was an­nual cash flow of R225 mil­lion, which kept Bankorp afloat un­til Absa bought it in 1992.

This interest is the R1.125 bil­lion Mkhwe­bane or­dered the state to re­claim from Absa.

In 1997, an agency of re­tired Bri­tish spies called Ciex ap­proached gov­ern­ment with an of­fer to re­cover var­i­ous funds that were al­legedly mis­ap­pro­pri­ated dur­ing the apartheid era.

For a commission fee, Ciex pro­posed to get the Bankorp bailout money back from Absa, as well as the var­i­ous other al­legedly stolen funds.

In Jan­uary, for­mer fi­nance min­is­ter Pravin Gord­han called their meth­ods a “egre­gious form of bounty hunt­ing”.

STRANGE DAYS Pub­lic Pro­tec­tor Bu­sisiwe Mkhwe­bane

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