BUSISIWE’S BIZARRE OUTCOME
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”.
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.
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