Beirut shows why we must protect Bank
On gaining independence in 1943, the people of Lebanon agreed to power sharing among the three dominant religious groups — Christians, Sunni Muslim and Shia Muslim — for president, prime minister and speaker of parliament, respectively.
Some of the main features of the Lebanese economic and political context today include government paralysis and unrelenting corruption, energy supply shortages, a burgeoning public-sector wage bill, rising poverty levels and unsustainable government debt that ultimately triggered a financial crisis. On March 9, Lebanon failed to repay its debt obligation on a $1.2bn Eurobond, the country’s first sovereign credit default.
While the challenges facing the country and the structure of its economy are vastly different to ours, it is hard to avoid concern about similar ailments, and how those continue to be drivers of worsening outcomes for the economy.
Political power sharing in Lebanon was largely driven by a burning need to have broad representation at the highest political level, to achieve peace and — as initially intended — to hold each other accountable. Some would argue that is similar to how political deployment by the ANC has panned out, where good intentions have resulted in policy implementation paralysis, lack of agility in responding to the urgent needs of the economy and its people, and destruction from within. This has put politics at the centre rather than service delivery and sustainable economic development.
There is an adage that goes: “When politicians squabble, it is often over how to share the spoils of power, not because they disagree on policy.” The ANC deployment strategy failed to place technical competence ahead of political assent. Within that political assent have come internal challenges of tribalism and representation in top positions. Again, not dissimilar to the Lebanese religious group representation quagmire.
There is a lot of emergent economic literature that finds economies that are ethnically diverse tend to have higher levels of rent-seeking, corruption and mismanagement of public funds, and that ethnic diversity may result in suboptimal policy development and execution. Among these are Paolo Mauro’s The Effects of Corruption on Growth, Investment and Government Expenditure: A
Cross Country Analysis; and William Easterly and Ross Levine’s Africa’s Growth Tragedy: Policies and Ethnic Divisions. Now is the time to resist the Reserve Bank and its mandate being drawn into political battle. We can’t use monetary policy to fight a fiscal and development challenge. At best, we can leverage a stable and predictable financial system to drive the growth agenda by pulling fiscal and socioeconomic development levers.
As Lebanon fell deeper into debt, it saw a dramatic decrease in remittances and bank deposits. Early signs of bank runs were evident and bankers imposed daily limits on withdrawals, while credit was drying up for firms. The lesson from Lebanon is again that it is vital to preserve the strength and independence of the Reserve Bank and ensure it is not left at the mercy of the politically powerful.
Lebanon’s prime minister stepped down from public office on Monday and announced the resignation of his cabinet after the Beirut explosion. Public outrage has left the country in search of its third prime minister in less than a year. While this is not in itself a desirable solution for SA, more needs to be done by those in the executive to hold others in public office to account before further degeneration of the fiscus forces the country into a long and painful reform and reconstruction process.