A scapegoat for populist politicians

The pressure on leading central bankers is understandable given the changing mood about the world’s growth prospects. Policymakers wary of a downturn and what it would do to their prospects for reelection naturally look towards these men and women for some sort of solution. US author Neil Irwin calls them “alchemists of monetary policy”.

Politicians are loath to undertake the more difficult structural changes in their economies because these can lead to early retirement.

By pouring much liquidity into the financial system in unison for up to five years after the 2008 crisis, the heads of leading central banks saved us from the worst of the repercussions of Wall Street’s greed. They cushioned the blow and spread a sugary high that seeped into financial markets.

Developed economies had enough liquidity to carry them through, and, for emerging-market economies such as ours, the cheap money meant elevated stock markets and support for the rand.

But the unconventional monetary policy, which included experimenting with as-yetuntried quantitative easing in the US, came with a price: if it worked, politicians would one day seek to use it again to bolster economic growth in their economies.

Play it again, Sam

Forget the extenuating circumstances of a subprime crisis, the trick worked, and populist politicians such as US President Donald Trump have ratcheted up pressure on central bankers to do it all over again. Their presidencies are on the line here.

While still a presidential candidate, Trump opposed the ultra-low interest-rate environment that the US Federal Reserve had in place, arguing that it bolstered the Democratic Party and Hillary Clinton.

Now he is in favour of a return to those days because he fears the imminent slowdown of the economy ahead of presidential elections next year.

This month, the International Monetary Fund (IMF) cut its outlook for global growth to the lowest since the financial crisis, highlighting a bleaker outlook in most advanced economies amid signs that a rise in protectionism was weighing on trade.

It’s the third time the IMF has downgraded its outlook in just six months.

Modi’s modus operandi

These growth concerns fed into poor relations between Indian Prime Minister Narendra Modi and his former central banker, Urjit Patel.

As governor of the Reserve Bank of India, Patel took a hawkish stance that created tensions, and in his final months in office he raised rates twice to fend off inflation. His replacement has subsequently cut rates.

Turkey, stuck in a currency crisis, has also seen the credibility of its central bank questioned over the years.

And then there is the story of SA.

You’d think that in a low-growth environment that has seen the country struggle to breach the 2% mark for the past five years, a central bank that has raised rates five times in that period would be in the crosshairs of the political class. Instead, the political pressures that the South African Reserve Bank has faced have mainly been about the factional battles within the ANC.

When the country’s leading banks decided not to bank the Gupta family because of concerns over money laundering, politicians linked to that family such as former minerals minister Mosebenzi Zwane started an all-out assault on the banking sector.

The Reserve Bank was urged to act in defence of the family. When it failed to do so, it fell out with the pro-Gupta faction.

It was then that talk of nationalising the Bank really came to the fore, a step that will have no bearing on its core functions but will prove rather costly.

Thereafter, there was the case of the failed VBS Mutual Bank. In this saga, all manner of criticism was directed at the central bank, including accusations that it was discriminating against VBS because it was black-owned.

The truth was that VBS was a corrupt enterprise that did not serve the interests of black South Africans.

From our policymakers, there’s been little or no critical thinking about the Bank’s pursuit of its inflation mandate and how it might better stimulate growth.

In SA’s case, politicians have become immersed in the operations of the Bank only in matters that serve their own interests, a most extreme form of selfpreservation.

There’s never been any regard for the welfare of the person in the street.

That’s been the story of our politics for the past decade — not a proud one to tell.

The political pressures have mainly been about ANC factional battles