Kganyago a bulwark and a lighthouse
Central bankers would seem to suffer the same fate wherever they are from. Listening to Reserve Bank governor Lesetja Kganyago’s comments after the monetary policy committee’s interest rates decision last week, one might well have been in Frankfurt, listening to his counterpart at the European Central Bank (ECB).
Mario Draghi’s elevation to the top job at the ECB coincided with Europe’s growth and debt crisis hitting new depths, meaning he has spent most of his term fighting fires.
In a desperate attempt to keep the economy afloat after Greece’s debt crisis threatened to engulf the whole region, the ECB took some extraordinary steps during his tenure.
These included pushing interest rates below zero and implementing a quantitative easing programme that has seen the central bank spend well more than €2-trillion buying debt instruments in an effort to stimulate the economy.
That was in line with his declaration in 2012 that he would do “whatever it takes” to save the euro when the worsening financial crisis had experts — from the left and the right — questioning the viability of having a single currency for disparate economies. So his time in office will be defined by the breaking of taboos, to the annoyance of German politicians and central bankers, whose thinking was dominated by a fear of hyperinflation, unfounded so far, rather than a stagnant or shrinking economy.
With some governments paralysed by the enormity of the task at hand and the rise of populism, the central bank ended up being the main bulwark, not only against a deeper economic crisis, but the potential collapse of the European unity project that has kept the peace for more than seven decades and delivered prosperity that might have been unimaginable in the aftermath of the Second World War.
Lower interest rates grew to be seen as a panacea, especially as they started to work, restoring confidence in the banking sector, which in turn encouraged lending to consumers and companies, so much so that the euro economy grew in 2017 at the fastest pace in more than a decade.
Throughout this, the question remained as to what needed to be done to foster a much more genuine, lasting and jobsupporting recovery, one that’s not driven by artificial central bank stimulus. That becomes a more crucial question with that programme due to run its course in 2018. Some analysts are suggesting Draghi may even get to increase interest rates, which would be the only hike of his term, before he leaves the ECB in October 2019.
So, after SA’s Bank delivered a rather bleak assessment of the economic outlook last week, similar questions were posed to Kganyago, eliciting a familiar answer to what one would have got in any of Draghi’s press conferences in recent years. Chances are that his words will also be in vain, at least for the time being.
After announcing a 0.5 percentage point cut to 1.2% in the Bank’s growth projections for 2018 and an acceleration over the next two years that will lift it to just 2%, Kganyago stressed a need for structural reforms, which has also been a favourite theme for Draghi as he lamented politicians’ failure to use the space provided by loose monetary policy to make reforms.
For such a vague-sounding expression, talk of “structural reforms” tends to be pretty toxic and displeases a number of vested interests. For the country’s trade unions, talk of labour market reform evokes the weakening of job security and lower standards, on everything from health and safety to parental leave.
And changes aimed at promoting competitiveness in markets and services are an obvious threat to established players who are able to abuse their market power at the expense of consumers.
Unlike the ordinary person on the street, these players also tend to have well-resourced lobbying departments and have the ear of the politicians. Kganyago acknowledged as much when he said implanting the right policies and seeing results will take time.
With an election due in less than a year, it’s hard to imagine any scenario where the government risks the shortterm anger of unions by pursuing policies that may only deliver results in the long term, possibly after the current office bearers have long left.
But then he went on to talk about low-hanging fruit that could be grabbed now, a point at which one hoped that Home Affairs Minister Malusi Gigaba had his television on.
Kganyago is not the first or the last person to talk up the country’s tourism potential and stress the need to make it “easier for the tourists to be here”. Instead, a sector that employs more people than mining and utilities put together has its prospects hindered by a home affairs department that sees its primary objective as keeping people out of SA.
KGANYAGO STRESSED A NEED FOR STRUCTURAL REFORMS, WHICH HAS ALSO BEEN A FAVOURITE THEME FOR DRAGHI OVER THE YEARS