Reserve Bank remains independent, making it tough to attack, says Lesetja Kganyago

The SA Reserve Bank’s independence has allowed it to weather political attacks over the past 10 years, according to governor Lesetja Kganyago.

“The people of SA were relying on their government to look after their interests, while some people were, instead, using public power to pilfer. The Reserve Bank made that more difficult, which is why the Bank was attacked,” Kganyago said at a public lecture at the Peterson Institute for International Economics in Washington, US on Monday.

“We’ve been on the front lines lately, the place where good and bad governance meet, and I promise you, in that situation, you really learn to believe in central bank independence.”

There is “one equilibrium” where the rule of law is upheld and corruption is not tolerated and a “second equilibrium”, where people use their power to enrich themselves, he said.

“Over the past 10 years, we moved from the first equilibrium towards the second, slowly at first, much faster towards the end. Many good institutions were weakened.”

The institutions that survived best were the ones with independence, such as the Reserve Bank and the judiciary, Kganyago said.

His speech follows concern about the Bank’s mandate and independence in recent months. The debate about the Bank’s mandate became part of public discourse when the ANC released an election manifesto on January 12, which stated that policy makers should consider growth and employment when deciding on policy. It also got caught up in intra-party ANC disagreements on whether the Bank should be nationalised, although ownership has no bearing on its monetary policy decisions.

“Independence allowed us to deliver on our mandate, as set down in the constitution. Independence ensured that the tremendous powers of a central bank — such as printing money, or licensing and supervising banks — couldn’t be taken over by politically connected individuals bent on looting the state instead of serving the citizens,” Kganyago said.

Defending independence

Despite a prolonged slump for the SA economy and inflation mostly near the top end of the 3%-6% target range, which saw a rise in interest rates in the midst of the downturn to keep inflation expectations in check, the Reserve Bank has faced political attacks, he said.

Kganyago cited several examples, including commercial banks closing the accounts of the Gupta family “for fear of violating laws against facilitating money-laundering”, which “sparked a political fightback”; the Bank placing VBS Bank under curatorship, which saw it come under attack for targeting a black-owned bank; and public protector Busisiwe Mkhwebane’s report ordering that the mandate of the Bank be altered to look after the socio-economic wellbeing of South Africans, which was overturned on review in a scathing court judgment. 

“Central banks may be under attack, but they deserve to be defended. They have been principled agents, serving the interests of their citizens, mostly with more effectiveness than people usually get from their governments,” Kganyago said.

The Bank’s independence has given it the “power to say no” to bailouts for state-owned enterprises (SOEs) that have had billions of rand looted through state capture and posed a significant fiscal risk, according to Kganyago.

“The challenge of dealing with too-big-to-fail SOEs, of combining cash injections with conditionality measures, needs to be dealt with by the elected authorities — as it has been in the latest budget from the National Treasury.” 

menons@businesslive.co.za