Public Pro­tec­tor takes aim at Re­serve Bank

Bu­sisiwe Mkhwe­bane’s call for changes in the Re­serve Bank’s man­date would un­der­mine its in­de­pe­dence and trig­ger more credit rat­ings down­grades.

Finweek English Edition - - THE WEEK - Ed­i­to­rial@fin­ Mariam Isa is a free­lance jour­nal­ist who came to SA in 2000 as chief fi­nan­cial cor­re­spon­dent for Reuters news agency af­ter work­ing in the Mid­dle East, the UK and Swe­den, cov­er­ing top­ics rang­ing from war to oil, as well as pol­i­tics

public Pro­tec­tor Bu­sisiwe Mkhwe­bane’s shock pro­posal to change the man­date of the South African Re­serve Bank (SARB) amounts to an at­tack on the in­de­pen­dence of an in­sti­tu­tion seen as the last re­main­ing bul­wark against state cap­ture and a vol­ley of credit rat­ings down­grades, which would wreak havoc on the coun­try’s frag­ile econ­omy. Her call to scrap the SARB’s in­fla­tion tar­get­ing frame­work – which pro­tects the value of the rand – knocked the cur­rency more than 1.5% weaker against the dol­lar, tak­ing it back through the key R13/dol­lar level as fi­nan­cial mar­kets di­gested the threat to one of the main cor­ner­stones of South Africa’s global fi­nan­cial cred­i­bil­ity.

Com­ing on the heels of a new Min­ing Char­ter seen as un­work­able by in­vestors, the word­ing of Mkhwe­bane’s pro­posed changes to the SARB’s man­date bears the hall­mark of the rad­i­cal eco­nomic trans­for­ma­tion be­ing touted by the gov­ern­ment and the ANC as the main so­lu­tion to the coun­try’s prob­lems. (Also see page 14.)

It has also added to the pol­icy un­cer­tainty weigh­ing on SA’s credit rat­ings and dealt yet another blow to dis­mal busi­ness con­fi­dence, which has sti­fled in­vest­ment and tipped the coun­try into a tech­ni­cal re­ces­sion that could last for the en­tire year.

ANC sec­re­tary gen­eral Gwede Man­tashe added his voice to crit­i­cism that the Public Pro­tec­tor had over­stepped her au­thor­ity and was not legally en­ti­tled to ask the port­fo­lio com­mit­tee on jus­tice and cor­rec­tional ser­vices to in­tro­duce a mo­tion in Par­lia­ment to change the word­ing of the SARB’s man­date in the man­ner she sug­gested.

Mkhwe­bane wants to re­move the clause in the Con­sti­tu­tion which says that the SARB must main­tain price sta­bil­ity to achieve bal­anced and sus­tain­able eco­nomic growth, replacing it with one say­ing it must pro­mote bal­anced and sus­tain­able growth “while en­sur­ing that the so­cio-eco­nomic well-be­ing of the cit­i­zens are pro­tected”.

This over­looks the fact that keep­ing in­fla­tion low ben­e­fits the poor the most, and would open the door to in­ter­est rate cuts which would fan in­fla­tion while at best only pro­vid­ing a short-term boost to growth.

“For me it’s quite strange that those com­ments were made,” said FNB chief econ­o­mist Sizwe Nxed­lana. “You should fix things that are bro­ken, not things which are not bro­ken. Mon­e­tary pol­icy is work­ing – that’s not where the is­sues are.”

The change could also al­low the SARB to mon­e­tise gov­ern­ment debt – which in ba­sic terms means print money to meet those obli­ga­tions. That would be con­ve­nient for the gov­ern­ment at a time when the coun­try looks set to miss its fis­cal tar­gets, but it would also be in­fla­tion­ary and have dev­as­tat­ing long-term eco­nomic con­se­quences. Un­for­tu­nately, that ap­pears to be ex­actly what Mkhwe­bane has in mind. In one of the sen­tences lead­ing up to the pro­posed man­date change, she says that the sta­tus of cen­tral banks as a “lender of last re­sort” would cease to ex­ist if gov­ern­ments took sole power of cre­at­ing money through the es­tab­lish­ment of state banks. Once this hap­pens, “nu­mer­ous ben­e­fits aimed at al­le­vi­at­ing eco­nomic ills of or­di­nary eco­nom­i­cally dis­ad­van­taged peo­ple may be achieved, un­like our cur­rent purely com­mer­cial trans­ac­tion sys­tem, which only seeks to im­prove a par­tic­u­lar fi­nan­cial sec­tor”. She fol­lowed up by say­ing in a ra­dio in­ter­view the next day that the SARB “should be ben­e­fit­ting ev­ery­one and mak­ing sure that South Africans are en­joy­ing the ben­e­fits of democ­racy” but that “in this par­tic­u­lar in­stance it’s only […] serv­ing a few com­mer­cial in­ter­ests”. The SARB has re­sponded to the pro­posed change in its man­date by say­ing the step would have a neg­a­tive im­pact on its in­de­pen­dence, and that it would bring “ur­gent re­view pro­ceed­ings” to have the ac­tion set aside in court. It also said it would ad­dress the “fac­tual in­ac­cu­ra­cies” in her re­port at the ap­pro­pri­ate time. An­a­lysts see lit­tle chance that the SARB’s man­date will change any­time soon as ul­ti­mately it would have to be passed by an over­whelm­ing two-thirds ma­jor­ity in Par­lia­ment. No­mura emerg­ing-mar­ket econ­o­mist Peter At­tard Mon­talto be­lieves that min­is­ter of fi­nance Malusi Gi­gaba could achieve that re­sult sim­ply be send­ing a let­ter to the SARB – but he sees that out­come as un­likely. None­the­less he adds: “The very fact that this is­sue has been raised and the SARB dragged into the de­bate is neg­a­tive.” Moody’s warned on 19 June that news from the Bureau of Eco­nomic Re­search show­ing that busi­ness con­fi­dence was at its low­est level since the 2009 fi­nan­cial cri­sis was a “credit neg­a­tive” and re­flected on­go­ing un­cer­tainty about fu­ture po­lit­i­cal lead­er­ship in the ANC and the pol­icy pri­or­i­ties of the new leader. Moody’s is the only top global rat­ing agency that has kept SA’s sovereign credit rat­ing at in­vest­ment grade, al­beit on the low­est level and with a neg­a­tive out­look. When it down­graded the coun­try ear­lier this month it warned that it would take the step again if there was fur­ther ev­i­dence that the “strength and the in­de­pen­dence of the coun­try’s in­sti­tu­tions” was be­ing un­der­mined, or that the pol­icy frame­work had be­come even less pre­dictable or shifted in a way that would un­der­mine eco­nomic or fis­cal strength.

Bu­sisiwe Mkhwe­bane Public Pro­tec­tor

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