The case against Mkhwe­bane

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­

The SA Re­serve Bank’s ap­pli­ca­tion to ur­gently re­view Pub­lic Pro­tec­tor Bu­sisiwe Mkhwe­bane’s re­port was filed on Tues­day and presents three dif­fer­ent ar­gu­ments.

First, ar­gues the Re­serve Bank, Mkhwe­bane doesn’t have the power to or­der changes to the Con­sti­tu­tion. Se­cond, even if she did, the change she or­dered makes no sense and is ir­ra­tional be­cause it bears no re­la­tion­ship to her ac­tual in­ves­ti­ga­tion. Lastly, the re­port is pro­ce­du­rally un­fair be­cause the in­terim ver­sion the bank had a chance to com­ment on didn’t men­tion any­thing about mone­tary pol­icy – deny­ing it the chance to mean­ing­fully com­ment.

The in­terim ver­sion was sent to in­ter­ested par­ties late last year and only or­dered that the pres­i­dent should con­sider a new com­mis­sion of inquiry into the 1985 Bankorp bailout.

An af­fi­davit by Re­serve Bank gov­er­nor Lesetja Kganyago this week de­tailed the panic that en­sued af­ter Mkhwe­bane re­leased her vastly dif­fer­ent fi­nal re­port.

Mkhwe­bane’s of­fice al­legedly dragged its feet in giv­ing the bank a copy of the re­port on the day of the re­lease as fi­nan­cial an­a­lysts al­most im­me­di­ately started call­ing for clar­i­fi­ca­tion.

Lawyers were called the same evening to pre­pare the bank’s re­view ap­pli­ca­tion. Two days af­ter the re­port’s re­lease, credit rat­ings agency S&P Global asked for a meet­ing.

The mys­tery around Mkhwe­bane’s de­ci­sion to tack a short cri­tique of cen­tral bank­ing on the back of her re­port re­mains.

“The re­port makes no ref­er­ence to a com­plaint about, or an in­ves­ti­ga­tion into, the Re­serve Bank’s con­duct in pur­su­ing its pri­mary ob­jec­tive,” said Kganyago.

Even the or­der it­self, which is ev­i­dently meant to at­tack in­fla­tion tar­get­ing, bears no re­la­tion­ship what­so­ever to the small amount of mone­tary pol­icy crit­i­cism Mkhwe­bane did write, he said.

“Not one of the find­ings re­lates to the Re­serve Bank’s func­tion in pro­tect­ing the value of the cur­rency.

“The gross over­reach by a chap­ter 9 in­sti­tu­tion must be stopped in its tracks so that cer­tainty and pre­dictabil­ity about the Re­serve Bank’s role in our con­sti­tu­tional democ­racy is af­firmed.”

In pass­ing, Kganyago called Mkhwe­bane’s pri­mary or­der that Absa should be pur­sued for R1.15 bil­lion “in­ex­pli­ca­ble”.

“This is a glar­ing er­ror, but it is not the fo­cus of this ap­pli­ca­tion,” he said.

“The Re­serve Bank has been tasked with price sta­bil­ity. The courts have been tasked with the ad­min­is­tra­tion of jus­tice and in­ter­pre­ta­tion of the laws. The army has been tasked with pro­tect­ing the bor­ders of this coun­try.

“Should we say that we should change the con­sti­tu­tional man­date of the army and make the army re­spon­si­ble for the so­cioe­co­nomic well­be­ing of all South Africans?

“The bank’s vi­sion is to lead in serv­ing the eco­nomic well­be­ing of all South Africans, and we will do this by pro­tect­ing the buy­ing power that they have. That means pro­tect­ing the value of the cur­rency.

“You can­not play around with the Con­sti­tu­tion. It is a covenant that South Africans have en­tered into ... As far as we are con­cerned, this covenant can only be changed by all South Africans and their demo­crat­i­cally elected rep­re­sen­ta­tives, which is Par­lia­ment.

“The au­thors of our Con­sti­tu­tion de­cided that we must be in­de­pen­dent and act with­out fear, favour or prej­u­dice ... We look beyond po­lit­i­cal cy­cles.”

Kganyago cited as an ex­am­ple that of­ten, the Au­di­tor­Gen­eral’s re­ports were “not po­lit­i­cally palat­able”.

“Those are ex­actly the checks and bal­ances that the au­thors of our Con­sti­tu­tion pro­vided, and they must be cre­ated. There will al­ways be con­tes­ta­tion about pol­icy in so­ci­ety. What’s im­por­tant about this con­tes­ta­tion is that we move from a com­mon ba­sis of facts and ev­i­dence.”

Kganyago said there were three key al­ter­na­tive mone­tary pol­icy frame­works to in­fla­tion tar­get­ing.

The US Fed­eral Re­serve has an in­fla­tion tar­get of less than 2%, as well as a mea­sure of tar­geted un­em­ploy­ment that it tracks.

The se­cond form of mone­tary pol­icy is aimed at “in­ter­me­di­ate tar­gets” or mone­tary ag­gre­gates, as used by the Bank of Eng­land and the Ger­man Bun­des­bank, such as credit growth and money sup­ply.

The third type of mone­tary pol­icy frame­work is used by Asian coun­tries, in­clud­ing China, whereby a coun­try tar­gets a level for its cur­rency ex­change rate, Kganyago said.

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