Kganyago his own best case for independence

When The Economist ran a cover story recently on political interference in central banks, it cited populist attacks on the independence of central banks in the US, UK, Turkey and India — but didn’t mention SA.

But when the Peterson Institute of International Economics in Washington chose South African Reserve Bank governor Lesetja Kganyago to give its prestigious annual lecture, it evidently did so because of his lived experience of fighting off incursions into the Bank’s independence. His lecture earlier this month will surely contribute to the global debate.

The argument for central banks to be independent is more conventionally about their role in controlling inflation and protecting price stability, which is their monetary policy mandate.

But Kganyago emphasised that the need for independence is just as important for central banks’ other mandate: protecting the financial system. Indeed, he said he’d never received a call from the Union Buildings telling him what to do about monetary policy. But the Bank faced big attacks (in the Jacob Zuma era) on its independence in regulating the financial system. Kganyago cited three: banking services for politically connected people (the Guptas); the curatorship of the failed VBS Mutual Bank; and the public protector’s report on the Bankorp bailout, which recommended the constitution be amended to change the mandate of the Reserve Bank.

To the usual textbook arguments about

independence and the need to curb economic short-termism by politicians, Kganyago added the “principal agent” problem, and the need for institutions that can ensure that societies can get their leaders to look after the public interest instead of their own political interests.

The Bank made it more difficult for people to use public power to pilfer, which is why it was attacked. Like the judiciary, it helped to protect SA’s democracy — thanks to its independence.

Kganyago’s lecture is an important intervention in the global debate. But it may be even more important locally, because this is a delicate moment for the central bank. SA has the advantage of being one of the few countries where the independence of the central bank is legislated in the constitution, which also specifically mandates the Bank to maintain price stability, in the interests of balanced and sustainable growth. The Bank’s financial stability mandate is more recent and less defined, and arguably relies even more heavily on the integrity and calibre of the Bank’s leadership.

But its leadership is in transition: one of the three deputy governor posts is vacant, and the term of another deputy comes up for renewal this year, as does that of the governor himself.

And though Kganyago is clearly keen to stay, he may come under pressure to take the finance minister post.

Now as much as ever it will be crucial for the president to appoint those “principled agents” of which Kganyago spoke.

The Bank made it more difficult to use public power to pilfer